Virgin Galactic remains 'long-term story,' but stock rallies 14% after earnings

Virgin Galactic Holdings Inc. stock rallied more than 14% on Wednesday after the company reassured investors it was on track to fly space tourists this year and to ready its next generation of spaceships.

Virgin Galactic late Tuesday reported a narrower fourth-quarter loss and a smattering of revenue, and more importantly it confirmed its timeline to offer its first space-tourism flights later this year on its Unity spaceship as well as being on track with maintenance needs.

Demand for its “one-of-a-kind experience” remains strong, the company said.

The quarterly results “point to capacity constraints (with) the first private astronaut spaceflight targeted for the end of 2022 and a steep ramp predicated on the Delta class spaceship,” expected in late 2025 or 2026, Jefferies analyst Greg Konrad wrote in a note to clients Wednesday.

Demand is not a concern, as Virgin Galactic has a backlog of 750 customers that should continue to expand, he said.

“While we acknowledge (the near term) lacks catalysts, (the long term) potential offers an attractive value proposition on supply ramping to meet demand,” Konrad said.

Virgin’s balance sheet provides some cushion for that ramp, he said. The company has about $905 million in cash and marketable securities and an additional $425 million from a convertible debt offering.

“Virgin Galactic has the capital to continue to build out its fleet and navigate near-term cash usage to support investments,” he said.

Austin Moeller with Canaccord Genuity sounded a similar call for investors to be patient.

“It is important for investors to understand that Virgin Galactic is a long-term investment story,” Moeller said in his note.

“While the first half of 2022 may be light on key milestones to track, we believe that the completion of the spaceship/mothership upgrades in Q3 are the most important near-term execution catalysts for the stock.”

Virgin told investors it is in the “final stages” of negotiations with suppliers to ready production of the second-generation motherships. Details and timing of the new motherships are likely to come this year.

The company also has set a target date of 2025-2026 for starting commercial service using its Delta spaceships.

Moeller said he expects that a batch of about four Delta suborbital spaceplanes will be flying passengers by 2025, he said.

Virgin has set a goal of reaching 1,000 deposits for its space-tourism flights before staring commercial service. Reservations for the $450,000 flight opened up for the general public last week.

After that drive, the company told Wall Street it will create a priority list for overflow interest, asking for a $10,000 deposit so the potential space travelers get first dibs on the next batch of tickets for sale.

Both Konrad and Moeller kept a buy rating on the stock. The pair are among 12 analysts polled by FactSet and join two other Wall Street analysts in rating the stock a buy. Five rate it a hold and the remaining three rate it a sell.

The average price target on the stock is $19.83, representing an upside of nearly 130% over Wednesday's price.

The stock has lost more than 80% in the past 12 months, contrasting with gains of around 11% for the S&P 500 index. SPX, +2.24%