Virgin Galactic Has Fallen; Future Liftoff Possible?

Remember Virgin Galactic (SPCE)? That’s right, the first company to send civilian astronauts to space is back in the headlines. However, this time it’s for a far less exciting reason. Last week, SPCE announced a multi-hundred-million-dollar convertible note offering, and investors acted in kind by selling off shares. The stock dropped almost 19% over the course of the intraday trading session, although now that the dust has cleared, analysts are ready to be bullish.  

One who expressed his sentiment in the aftermath of the event is Greg Konrad of Jefferies Group, who explained that the move can be seen as opportunistic, “given the low interest rate environment and increases [in] capital as the company goes through a period of stepped up investment to serve growing demand.”  

Konrad rated the stock a Buy, but cautiously lowered his price target to $24 from $30. This target currently indicates a possible 12-month upside of 136.69%.  

The company is said to be enhancing its existing spaceships, and investing heavily in newer ‘Delta class’ generations and infrastructure. Additionally, the convertible note offering is expected by Konrad to provide a “cash buffer” for the firm, which has a growing backlog of customers. Virgin currently has enough cash on hand to equal about 10 quarters of liquidity.  

Tough Times

Despite its early mover advantage, as Konrad puts it, SPCE has been rather beaten down by investors since its initial flight on July 11, 2021. Despite the broader bull market these past seven months, shares are down about 80% since the pre-flight peak, as the back half of the year was not as kind to pre-revenue companies as the past months had been.  

While raising capital in such a manner may shake off investors initially, Konrad sees the move as beneficial in the long-run. He notes possible catalysts for upside as an eventual pricing increases, reopening of sales, and further information regarding its new class of spaceships enticing investors back to the stock.  

On TipRanks, SPCE has an analyst rating consensus of Hold, based on three Buy, two Hold, and two Sell ratings. The average Virgin Galactic price target is $24, the same as Konrad’s own calculation. SPCE’s upcoming earnings are expected to be reported on February 24, 2022.  

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