Virgin Galactic's (SPCE) - Get Report stock has fallen more than 70% over the past month, leading analysts at Morgan Stanley to pump the brakes and raise shares of the company to overweight from equal weight.
While the firm lowered its price target to $24 from $30 a share, the price target still represents a potential 90% upside from the stock's closing price Monday of $12.97.
Morgan Stanley analyst Adam Jonas noted the company has a healthy cash position of more than $500 million, compared to a monthly cash burn that is estimated at only $16 million.
Despite that positive, there is still risk with the space tourism industry generally and Virgin specifically.
"Despite the healthy backlog ($80m and ~8k registrations of interest), deposits are largely refundable and aspiring 'astronauts' may reconsider discretionary spending in light of a weaker economic backdrop (Covid-19)," Jonas wrote. "The market for space tourism (the majority of our PT) is driven by demand for luxury experiences, which could be hampered in a post-Covid-19 world.
On the other hand, Morgan Stanley's base case estimates $14 a share for the company's space tourism segment and another $10 a share for its Hypersonic segment, leading to the $24 price target.
"In our view, the shares feature biotech-type risk/reward where today’s space tourism business serves as a funding strategy and innovation catalyst to incubate enabling tech for the hypersonic P2P opportunity," Jonas wrote.
Virgin plans to offer 90-minute space tourism journeys at a base price of $250,000 per trip and it currently has more than 600 reservations.
Virgin shares jumped 17% to $15.15 in trading Tuesday.