Without catalysts that wow investors, space-tourism pioneer Virgin Galactic Holdings has a valuation problem.
Tuesday evening, Morgan Stanley analyst Kristine Liwag cut her rating on Virgin Galactic (ticker: SPCE) stock to Sell from Hold. Her price target, however, stayed at $25 a share. After a recent “catalyst-rich period” she expects the stock to more closely track long-term fundamentals. And that implies a drop of about 20% from recent levels of $31.33 a share.
Virgin Galactic stock is down 8.6% to $28.65 in Wednesday morning trading. The S&P 500 index is up 0.2%, and the Dow Jones Industrial Average is up 0.6%.
“Catalyst-rich” is an apt description of the last few months for Virgin Galactic. After the stock traded below $15 following disappointing news of flight-testing delays in early May, shares have enjoyed a series of positive developments that drove shares higher. Testing got back on schedule. The Federal Aviation Administration awarded Virgin Galactic its license to carry paying passengers. Sir Richard Branson went to space. And the company opened up bookings again with new price points as high as $450,000 a seat.
Liwag now expects a lull. Investors will be left to reflect on valuations. And Virgin Galactic is expensive, even though sales are expected to grow rapidly. Shares trade at about 369 times and 86 times estimated 2022 and 2023 sales, respectively. Liwag, for her part, values the stock at about 26 times 2025 sales and about 5 times estimated 2030 sales.
She expects Virgin Galactic to be generating roughly $1.3 billion in sales and about $743 million in Ebitda, short for earnings before interest, taxes, deprecation, and amortization, by 2030.
Including Liwag’s new rating, two out of 11 analysts covering Virgin Galactic—18%—rate shares at Sell. The average Sell-rating ratio for stocks in the S&P 500 is about 7%. Four out of 11, or 36%, rate Virgin Galactic stock at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The other five analysts rate Virgin Galactic stock at Hold.
Liwag isn’t the only analyst to cut ratings recently. UBS analyst Myles Walton downgraded Virgin Galactic stock to Hold from Buy in July.
Back in early May, when Virgin Galactic stock was far cheaper, four out of 10 analysts rated them at Buy, and none rated them at Sell.
Back then, the average analyst price target was about $37 a share. Not much has changed. The average analyst price target is now about $36 a share, higher than Liwag, and still about 15% above recent treading levels.
Virgin Galactic stock is up 32% year to date, better than comparable gains of the overall market, but it’s been an interesting ride to get there. Shares are down 50% from their record high in February, and up 120% from a May 52-week intraday low.
Write to Al Root at [email protected]
