Virgin Galactic Initiated With an Outperform at Cowen. So is it Going "To Infinity and Beyond"?
Kevin Perkins & Nikhil Gunderia
Every little kid, at one point or another, dreams about going into space. We are influenced by the countless animated movies, the science classes in elementary school and those cool NASA Halloween costumes to want to explore the world outside of Earth. This desire to travel remains with us even as we get older and Virgin Galactic (NYSE: SPCE) seeks to capitalize on this aspiration by developing a non-Earth bound spacecraft that will be used for commercial purposes.
Today, Cowen initiated coverage on Virgin Galactic within the aerospace sector. Given that there has been an increase in customer interest for space travel experiences, Cowen believes that there is a sizable growth opportunity for the commercial spaceflight business. Virgin Galactic was initiated with an Outperform and $22 price target.
Recently, there has been a tremendous amount of demand for commercial space flight with Virgin Galactic. According to a Cowen survey, the interest for utilizing Virgin Galactic’s services is high among those who are considered high-net individuals. Digging into the numbers, we see that approximately 35% of all individuals with a Household Income (HHI) over $1 million and 39% of individuals with HHI of over $5 million would be willing to pay $250,000 or more for a ticket. There is certainly a “pent-up interest” from consumers which is driving Cowen’s initiation of Virgin Galactic to outperform.
Virgin Galactic has the potential to drive high margin revenue due to its vertically integrated capabilities. Cowen’s survey results indicate, “there would be a significant increase in the level of interest to travel to space if the cost was lower in the $150k-$250k range.”
The analysts also noted: “Cowen estimates a large total addressable market (TAM) for commercial spaceflight (sub-orbital) of ~2.4mm individuals with a net worth of +$5mm+ globally based on Cowen's Proprietary survey.”
Virgin Galactic’s high speed Point-To Point (P2P) commercial air travel is seeking to thrive from the development of the hypersonic aircraft which could expand Virgin Galactic’s market penetration into the hypersonic industry. “We forecast a hypersonic industry TAM
of ~$985 Bn by 2050 in our base scenario where Virgin Galactic garners 20% of the market,” stated the analysts.
Success for companies such as Virgin Galactic are highly dependent on consistent/recurring consumer interest. Cowen’s research demonstrates that there is a strong desire for individuals to take multiple trips. 78% of those surveyed with an HHI of over $1 million said that they would want to take multiple trips on Virgin Galactic’s space flights while 80% of those same individuals would be interested in joining a membership program. Virgin Galactic also has the capability to capitalize on the revenue created by selling merchandise.
Virgin Galactic is currently operating in a sector with a total addressable market ~$1 trillion. According to research data, there is tremendous opportunity for growth and analysts believe that it’s time to “own the final luxury frontier.”
Disclosure: At the time of publication, We have no positions in any of the securities mentioned in this article. We wrote this article ourselves, and it expresses our own opinions. We are 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.