Virgin Galactic (SPCE) is one of the hottest stocks of 2020, more than tripling in value over the previous seven weeks, but analysts at Morgan Stanley pumped the brakes in a note Thursday.
The firm has an overweight rating on the stock, with a $22 price target that represents a potential 41% downside from the stock’s closing price Wednesday of $37.35. Virgin Galactic shares were rising 9.5% to $40.80 in trading.
Morgan Stanley believes that now would be a good time for the space tourism company to raise capital after the shares have soared over the past 12 weeks.
“While the company has sufficient levels of liquidity to meet the needs of launching its commercial service, investors may nonetheless ask, or even encourage, management to consider adding to the coffers, given unpredictable market conditions and the wide range of commercial applications inherent,” analyst Adam Jonas wrote.
Virgin Galactic is currently priced at eight times Morgan Stanley’s 2030 expected revenue estimate. The firm sees the stock as fully discounting what could be a highly successful space tourism business at scale.
Investors should keep their eyes on Virgin Galactic's fourth-quarter earnings release on Feb. 25, with the analyst community focusing on questions concerning upcoming testing and certification milestones for the company's Spaceship VSS Unity.
Other milestones include news around the company’s reservation backlog, potential government development contracts, further potential strategic partnerships and its first scheduled commercial flight carrying founder Richard Branson.
“Enthusiasm around the emerging space economy has triggered a pace of volume and volatility around SPCE that has taken the MS Space Team by surprise. A modest correction is overdue, and frankly, healthy, in our opinion,” Jonas said.