Virgin Galactic Holdings Inc (NYSE: SPCE) surged 24.8% on Monday as Ron Epstein, analyst at Bank of America announced a bullish $35 price target. This price target suggests an upside potential of 71% from todays current price. The bullish outlook from analysts gives long term shareholders of Virgin Galactic a vote of confidence moving into 2021. Further, SPCE is set to launch Richard Branson into space in the first quarter of 2021, marking the beginning of commercial space travel. Let’s breakdown the long term outlook for Virgin Galactic stock moving into 2021 and beyond.
What are analysts saying about Virgin Galactic?
According to WSJ data, 7 analysts have listed a BUY rating for SPCE. The general sentiment across the board is Bullish, with Morgan Stanley and Credit Suisse currently holding a price target of $24 (15% upside potential from its current price). The strongly bullish take from Ron Epstein sent the stock sky-rocketing. The Bank of America analyst broke down some key points investors should note as we move onto 2021.
- SPCE currently have 600 “large” deposits from customers eager to be the first to fly commercial in 2021. With another 8000 smaller deposits according to the BofA analyst. The long line of customers suggests initial demand will be high throughout 2021 and beyond. If SPCE are able to launch successfully in the first quarter of 2021, the bullish revenue projections should hold true for 2021-2022. Read the section below to see revenue 2021 forecasts.
“We saw continued growth in customer demand, with increases in paid enrollments for our ‘One Small Step’ program, and entered into deposit agreements for orbital spaceflights with twelve customers.” said George Whitesides, Chief Space Officer of Virgin Galactic.
- The fundamentals of vertical integration on a basic level is the strategy of buying your supplier to reduce costs in the long term. With SPCE building their own spacecrafts and engines from start to finish, the costs and quality control will remain within the companies boundaries. The reason why Ron Epstein mentions this in his price target evaluation is because it “mitigates execution risks” as we get closer to launch date. This is a big tick for long term shareholders moving forward.
- The risk associated with Virgin Galactic stock is still high. As they pave the path forward to commercialising space travel, the road ahead is going to be experimental. This will continue to be a monumental challenge for the SPCE executives and board members. This is definitely something the Bears are arguing as we move into 2021.
https://www.youtube.com/watch?v=Ya1w2vAiEoY
What are the forecasts moving into 2021 and beyond?
Before I begin, I remind our viewers that this is not advice but rather investment commentary from extensive research.
Analysts have had a hard time forecasting revenue past 2021 as the company has not been generating solid revenue. The company made no revenue for this quarter, however this was not a huge shock for investors. Moving forward, the revenue forecasts for Virgin Galactic in 2021 currently stand at $33.76 million annually, an increase YOY north of 1000%. The revenue increase is set to be a by-product of successful commercialisation in 2021.
The company is yet to release stronger guidance in regards to revenue, however we will continue to get a better understanding every quarter closing towards commercialisation. All eyes will be on SPCE in the first quarter of 2021, likely driving a higher level of volatility similar to what we saw in Tesla throughout 2019.
The risk- reward scenario for Virgin Galactic is very unique. SPCE is the only current company trading on the US market that will allow investors to enter the exciting new industry of space travel. The safety risk associated can definitely swing the sentiment of this stock, however I believe the method of travel is not well understood amongst the general public. I recommend having a look at the Virgin Galactic website for information on how they plan to execute commercialisation the space travel industry.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.