Virgin Galactic Holdings: Analyzing Recent Flight Delays

Ticker: SPCE

Rating: Overweight

Price Target: $24

Headline:

Virgin Galactic (SPCE) has been forced to reschedule its human-piloted space ship test flight (originally planned for between Nov 19 and Nov 23) due to fresh COVID-19 restrictions in the state of New Mexico including a state-wide stay-at-home order through Nov 30th. Coming at a bad time, given the recent momentum in the name, we offer the following insights into the stock.

Details:

1) As recently as earlier this month, SPCE reiterated their continued timing for a man-flight mission later this month. But given the stay-at-home orders, this will continued to be delayed for the foreseeable future. Outside of the recent stock momentum, this also particularly comes at bad timing because of the departure of the COO (to lead the NASA equivalent in Australia - which is hard to turn down) and their main competitor, SpaceX's, recent announcement of a successful launch towards the international space station (ISS). We hope the market can look past this, as this is entirely outside of their control. Although we have no idea when the next mission will be rescheduled.

2)  In our opinion, a month or two of delay may not have a material impact on our DCF model or the long term valuation of the stock. However, given delays in the testing (regardless of cause/whether outside of the company’s control), it may be prudent for investors to layer in an enhanced margin of safety in terms of timing of initial flights for 2021.All in all though we are long term believers of the name but fully admit the stock may experience some turbulence in the short term. We also acknowledge that in space flight, there are often set backs that can add additional volatility into the mix such as FAA approvals, cash burn, etc.. Factoring all of this into our model, we arrive at a price target of $24 that we believe is achievable in the longer term.