Bank of America (BofA) has slapped a “buy” rating on Virgin Galactic (NYSE – SPCE), a space exploration company according to a note from the Bank on Monday.
Virgin Galactic, despite not being operational yet has received a target price of $35 from BofA. This target price represents a 113% upsurge from its closing price on Friday.
Virgin Galactic went public in 2019 jumped over 20% on Monday following the positive outlook from BofA as investors rushed to key into the opportunity of potential capital gain.
At the time of this report, Virgin Galactic is trading at $19.57 representing a 19.11% rise.
YTD the share price is up about 70%, although it traded as high as $42.49 on 17 February 2020.
Virgin Galactic is focused on both space tourism (sending passengers into space) and hypersonic point-to-point travel (developing Mach 3 aircraft).
According to BofA here are five reasons Virgin Galactic can move higher as it begins to serve customers in 2021;
- Lack of competition.
“Virgin Galactic has a unique business with a leading market position. The only sub-orbital space tourism competitor in existence (Blue Origin) has not ever flown passengers,” BofA said.
- Extraordinary Growth Potential.
“The long-term opportunities in space tourism and hypersonic point to point travel are nearly revolutionary. Purchasing shares of Virgin Galactic today offers investors the opportunity to get into a company at the very beginning of its growth story. No company in our coverage universe has anywhere near comparable growth potential,” said BofA.
- Experienced and compelling management team.
BofA noted that Virgin Galactic has a strong management team that includes Chief Space Officer George Whitesides, who spent more than 20 years at NASA, and CEO Michael Colglazier, who spent more than 30 years at Disney, most recently managing its international parks division.
- Vertical integration capabilities.
“Virgin Galactic’s technology and vertical integration capabilities are unparalleled. There is no company in the world that designs and builds its own aircraft end-to-end and then operates that vehicle commercially. In our view, the steps Virgin Galactic has taken over the past decade to vertically integrate somewhat mitigate execution risk,” BofA said.
- Robust total addressable market.
“The company’s target audience is adults with a total net worth of over $10mn, of which there are currently 2mn worldwide. However, we note that the company has mentioned that many customers have an estimated net worth of materially lower than $10mn (~$1mn+). In this case, the future astronauts are likely space enthusiasts with a lifelong dream of experiencing the “planetary perspective,” BofA said.
Risks involved
BofA said that risks associated with a high-flyer like Virgin Galactic, include no financial or operating history and valuation being a challenge, since there are no pure comparable companies for data analysis.
BofA noted that there are still risks involved in the company’s business despite its growth potential, which investors should keep in mind such as the potential decrease in consumer demand which might arise in the event of a fatal accident.
Written by;
Ifunanya Ikueze
