Shares of Virgin Galactic (SPCE) are under pressure on Wednesday after Bank of America analyst Ronald Epstein double-downgraded the stock to Underperform, a sell-equivalent rating, despite the Federal Aviation Administration's approval to carry passengers into space. The analyst believes risks remain and a premium is already priced into the stock that will likely dwindle as more commercial space companies go public.
SELL VIRGIN GALACTIC: Bank of America analyst Ronald Epstein double-downgraded Virgin Galactic to Underperform from Buy with an unchanged $41 price target. The analyst acknowledged the FAA approval to carry passengers into space and noted that the company remains a beneficiary of the commercial space race. However, after the 39% jump in Virgin Galactic stock price on the news, Epstein believes the premium that is already priced into the stock will dwindle as more commercial space companies go public. Furthermore, the development of space technology carries significant risk and the market tends to respond more volatilely to development-related news, he contended.
The analyst pointed out that the FAA decision came after Virgin Galactic satisfied the regulator’s concerns regarding the VSS Unity’s horizontal stabilizers and flight control systems during its May 22 test flight. This was Virgin Galactic's third manned flight and the first to be launched from Spaceport America in Sierra County, New Mexico. During the spaceflight, VSS Unity reached a speed of Mach 3 and an altitude of 55.5 miles above Earth, 5.5 miles above the NASA-recognized boundary with space, Epstein added. While the FAA approval brings the company one step closer to carrying passengers, whom the FAA recognizes as “spaceflight participants,” into space, the analyst noted that the company has not announced when it will begin commercial service into the final frontier. Nevertheless, the approval demonstrates that Virgin Galactic is on track to complete another three suborbital test flights by fall 2021, the first carrying four employees to test the passenger cabin and flight procedures, the second carrying founder Richard Branson, and the third carrying members of the Italian Air Force conducting astronaut training and microgravity research, Epstein said.
WHAT'S NOTABLE: On Monday, Alembic Global analyst Peter Skibitski downgraded Virgin Galactic to Neutral from Overweight with a price target of $36, up from $25. Following Friday's "extraordinary 38.9% share price increase," he believes the market is already "fully factoring in a lot of the company's future success." At Friday's closing price of $55.91 the stock is approaching the all-time high again valuation is "now stretched to excessive levels," Skibitski contended. Nonetheless, the analyst acknowledged that the upcoming Branson flight, likely to occur in August, is a potential positive catalyst for the stock.
PRICE ACTION: In Wednesday morning trading, shares of Virgin Galactic have dropped over 7% to $43.62.
Virgin Galactic
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