Virgin Spaceship Unity and Virgin Mothership Eve.
Courtesy Virgin Galactic
Despite how Virgin Galactic’s stock price has been cut in half this year, Wells Fargo believes there is much more downside ahead.
On Tuesday, analyst Matthew Akers initiated coverage on Virgin Galactic (ticker: SPCE
) with an Underweight rating and a $4 price target. The stock fell 1% to $6.18 after the report.
“We see further risk left to go for SPCE, as we are doubtful it can develop its new Delta spacecraft and continue to fund operations without a further capital raise,” he wrote. “We believe SPCE’s valuation is driven by retail investor interest, which could decline further if economic activity slows.”
The analyst estimates Virgin Galactic’s new-spacecraft development will cost $500 million to $1.5 billion, which in addition to the company’s more than $200 million-per-year cash-burn rate, would consume Virgin Galactic’s $1.2 billion in cash in the coming years.
Akers also noted how the company has repeatedly been “too optimistic” in predicting the start of commercial operations for its space tourism service since it was founded 18 years ago. In May, Virgin Galactic postponed the launch of its service to early next year from the fourth quarter, citing supply-chain and labor issues.
Virgin Galactic didn’t immediately respond to a request for comment on the analyst report.
Wall Street analysts have been mixed on Virgin Galactic, and bulls are in the minority. About 50% have ratings of Hold or the equivalent on the stock, while 33% have Sell ratings on the shares, according to FactSet.
It has been a rough year for Virgin Galactic investors, with its shares down 54% year to date, compared to the S&P 500 ’s 21% drop for the same time period.
According to Wells Fargo’s latest analysis, there doesn’t seem to be any sign of a fundamental rebound for Virgin Galactic either.
Write to Tae Kim at [email protected]
