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New initiations in the aerospace industry reflect bullishness on Maxar Technologies (NYSE:MAXR) and bearishness on Virgin Galactic Holdings (NYSE:SPCE) at Wells Fargo.
Equity analyst Matthew Akers initiated coverage on three names in the aerospace industry Virgin Galactic, Maxar Technologies, and Rocket Lab USA (RKLB) with ratings equivalent to Sell, Buy, and Hold assigned to the names in that order.
He noted that while Maxar (MAXR) is focused on the attractive earth-imaging industry and appears “de-risked,” Virgin Galactic’s (SPCE) unsteady balance sheet and elevated valuation suggest significant downside still ahead.
“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, while we estimate the stock currently prices in at least 10x acceleration in ticket sales which we view as unlikely,” Akers explained. “We believe SPCE's valuation is driven by retail investor interest, which could decline further if economic activity slows.”
He set his price target at just $4, suggesting a steep drop from its already depressed share price hovering around $6.30 on Tuesday. The 52-week high for the stock marked in the summer of 2021 was $57.51, highlighting the stark decline for the stock in the past year.
By contrast, Maxar is grounded by a steadier investor base and a more attractive market in space infrastructure. Additionally, successful deleveraging efforts as of late and a push to profitability diminish debt risks that are rearing their head on many names in the emerging space technology industry, according to Akers.
“While many new space companies won't break even for multiple years, MAXR is already profitable with margins ahead of nearly every company in our coverage,” Akers told clients on Tuesday. “Despite increased competition from new entrants such as Planet Labs (PL) and BlackSky (BKSY), we think MAXR's recent win on NGA's Electro-Optical Commercial Layer (EOCL) contract, with similar/higher content as its prior contract, demonstrates it can hold onto the leading market share position.”
He assigned a Buy-equivalent rating with a $39 price target on the stock.
Elsewhere in the space infrastructure sector, Rocket Lab USA (RKLB) was given a Hold-equivalent rating and a $5 price target, only slightly above the share price marked shortly after Tuesday’s market open. Akers advised that while the company’s bullish growth outlook is “more achievable” than those of its peers, the valuation is “still settling out” from its stratospheric levels touched in the 2020-21 SPAC craze. Additionally, the forecast for 30%+ margins remains a “show me” story.
While shares of each of the names initiated rose on Tuesday, Rocket Lab (RKLB) and Maxar Technologies (MAXR) marked much stronger gains than the more critically assessed Virgin Galactic (SPCE).
Read more on recent refinancing efforts from Maxar.