Virgin Galactic Has Long-Term Potential, Short-Term Risks: Goldman Sachs

Virgin Galactic is one of the pure play stocks in the space tourism industry. Since going public via a special purpose acquisition company in 2019, the company has attracted interest from investors and analysts. 

The Virgin Galactic Analyst: Goldman Sachs analyst Noah Poponak initiated coverage of Virgin Galactic Holdings Inc SPCE with a Neutral rating and $19 price target. 

The Virgin Galactic Risks: The key risks to Poponak’s Neutral rating are Virgin Galactic's long timeline, potential delays, high costs and potential for competition, he said in a Friday initiation note.

“It is unclear how many people, even with the financial means to do so, will want to fly to space, which makes the TAM penetration rate open to a wide range of potential outcomes,” the analyst said. 

Virgin Galactic's business may not be recurring, as customers will likely fly to space once, he said. 

Poponak does not project for Virgin Galactic to produce positive cash flow before 2025 at the earliest.

“Ultimately we believe the key question for investing in SPCE is how many people will want to fly to space and how much will they pay to do so.”

Blue Origin is a key competitor, the analyst said.

Blue Origin, founded by Amazon.com AMZN CEO Jeff Bezos, is “well-funded” and could outpace Virgin Galactic's offerings in some ways, he said. 

Related Link: Analyzing Virgin Galactic Hldgs’s Unusual Options Activity

Virgin Galactic's potential is “substantial” if the company can capture the space travel and supersonic flight opportunity, Poponak said. 

Lower ticket prices in the future could open up the market beyond the wealthy individuals who will initially be targeted, the analyst said. 

“Over time, lower ticket prices could open the customer aperture.”

Virgin Galactic has already completed 27 of the 29 steps for FAA approval to fly paying customers, according to Goldman Sachs.

Benzinga’s Take: Goldman Sachs is the only analyst with a price target of under $20 on Virgin Galactic.

Virgin Galactic is expected to complete test flights by end of 2020 or start of 2021. If the tests go well, the company said it will fly Richard Branson to space in the first quarter of 2021.

Goldman Sachs points to potential FAA approval, Branson’s flight and the beginning of commercial operations as upcoming catalysts. 

SPCE Price Action: Shares of Virgin Galactic were trading down 7.53% at $19.17 at the time of publication. The stock is up 79% year-to-date.

Photo courtesy of Virgin Galactic.