The potential for commercial space travel has grown significantly ever since astronauts landed on the moon. The two major drawbacks that have hindered the public’s travel to space are the unreliability of spacecrafts and the extremely high ticket price. However, advancements in recent years are making commercial space travel look more and more possible in the near future. UBS joined this space bandwagon, initiating coverage of Virgin Galactic (SPCE) on Monday, with a Buy rating and $25 price target.
In their equity research report, UBS identifies three questions that are central in their decision to initiate SPCE with a Buy rating.
The first of the three questions is whether or not people are ready for commercial flights to space. According to the analyst reports, passenger trends for space travel will follow passenger trends for normal travel on Earth. From 1926 to 1940, the number of people flying grew from ~6,000 to ~3 million. UBS expects a similar trend in space travel with 120 passengers in 2021 growing to ~13,000 passengers in 2035. Similarly, the space economy is expected to grow to $800 billion with an annual compound growth rate of 10% from now until 2030.
The second question UBS answers that helped determine Virgin Galactic’s price target is if there are enough high net worth (HNW) individuals to sustain commercial space flights. Preliminary data prices the tickets for flights on Virgin Galactic flights around $250k-$300k. This lends UBS to believe that the market for people flying is limited to individuals who have a net worth above $30 million. Fortunately, for Virgin Galactic, there are over 150,000 individuals and rising who fit this profile, making the sustainability of commercial space flights possible.
The final question identified in the report addresses if there are potential areas of expansion outside the current business model. Virgin Galactic’s current plan is to create five commercial spacecrafts that will take the public to space, but that is only the beginning. The growth beyond current plans can range from increasing the addressable market of consumers by lowering prices due to economies of scale to partnering with the government for the development of “high-speed transport”.
UBS is yet another company to believe in the potential of space travel and hopefully, their analysis proves to be right. At the time that the article was written, shares of Virgin Galactic (SPCE) are up roughly 9%.
Disclosure: At the time of publication, I am long Virgin Galactic (SPCE). I wrote this article myself, and it expresses my own opinion. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article.