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Is Virgin Galactic Stock A Buy As The FAA Clears It For Flight Again?

Virgin Galactic (SPCE) can resume its test flight program following a regulatory review that grounded its spacecraft for nearly a month. 




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The Federal Aviation Administration opened a probe in September into Virgin Galactic’s flight on July 11 for veering off its projected flight path during descent. The flight included two pilots, three crew members and founder Richard Branson.

“Our test flight program is specifically designed to continually improve our processes and procedures. The updates to our airspace and real-time mission notification protocols will strengthen our preparations as we move closer to the commercial launch of our spaceflight experience,” CEO Michael Colglazier said in a release.

The next test flight is its Unity 23 research flight with the Italian Air Force. But Virgin Galactic is now projecting a launch date of late October instead of late September or early October after a supplier warned of a possible “manufacturing defect” in a component of the flight control actuation system.

Is Virgin Galactic stock a buy now that its flights have been cleared to fly again? Investors first need to look at the stock’s long-term fundamentals and stock action.




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Virgin Galactic’s Flight Schedule

Virgin Galactic reported a loss of 39 cents per share in Q2, more than the 33 cent per share loss FactSet analysts expected. Revenue rose to $571,000, beating expectations. The company has not yet started commercial service but Branson’s flight in July carried revenue-generating scientific research experiments.

Following the Italian Air Force flight, the Eve mothership that carries the spaceplane to high altitude will undergo an enhancement program that will wrap up around mid-2022. After that, another flight with a full complement of crew specialists will take place to confirm the cabin interior adjustments are functioning as planned.

Then commercial service is expected to start in late Q3 2022. That’s later than a previous timeline for early 2022, which was pushed back from early 2021.

Virgin Galactic also reopened ticket sales with prices starting at $450,000 per seat during its Q2 earnings report on Aug. 5. The starting price is above the previous price point of $250,000. So far, 600 people have booked space flights before ticket sales were closed.

“From this report, I think they’re putting more pressure on Blue Origin to compete on price now,” said Andrew Chanin, CEO of ProcureAM, which launched Procure Space ETF (UFO).

Privately held Blue Origin successfully took founder Jeff Bezos and his brother along with a paying crew member into space as part of its first crewed mission on July 20.

While the company began as a space tourism company, analysts have also noted Virgin Galactic’s potential in hypersonic point-to-point travel, by using its space plane to take passengers across continents in a fraction of the time it takes today.

Virgin is partnering with Boeing (BA), whose venture capital arm HorizonX has a $20 million minority stake in Virgin Galactic, in high-speed travel.

Wall Street Gives Mixed SPCE Ratings

Virgin Galactic said in February 2020 that it sees a “huge opportunity” to apply high-speed global mobility technology to reduce travel time. Then-CEO George Whitesides told CNBC at that time that the company wants to integrate its vehicle into national airspace systems, allowing it to land at airports and link to local transport networks.

But Wall Street, which once had all buy ratings on SPCE stock, has turned more mixed on the company.

Jefferies launched coverage on SPCE stock on Aug. 31 with a buy rating and a 33 price target. The analysts see Virgin Galactic’s total addressable market at $120 billion and see Virgin Galactic’s revenue hitting $1.7 billion by 2023.

But others aren’t so bullish.

Morgan Stanley cut its rating to underweight from neutral weight as the company is soon to shift to a period of no flights. But it kept its price target at 25.

“After the expected flight of Unity 23 in September 2021, the company’s sole mothership, Eve, will be grounded for an 8-month enhancement period. During this heavy maintenance period, Virgin Galactic will not be able to conduct any space flights until summer of 2022,” analyst Kristine Liwag wrote in a note dated Aug. 11.

Bank of America lowered Virgin Galactic stock to underperform on June 30, noting that the premium already priced into the stock is likely to decline as more space tourism companies go public.


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SPCE Stock Technical Analysis

Shares were building a deep cup-with-handle base with a 57.61 buy point, but lost support at the 50-day line while finding support at the 200-day line. The stock fell below its 50-day and 200-day lines following the Q2 earnings report in early August and have been moving lower since.

Virgin Galactic
(Steve Mann/shutterstock.com)

Virgin Galactic has an IBD Composite Rating of just 6 out of a best-possible 99, according to MarketSmith. The key rating combines five other IBD stock ratings. The stock also has a poor 26 EPS Rating.

The relative strength line spiked after Branson’s flight in July but is slumping again.

The stock has an Accumulation/Distribution rating of D, indicating more selling than buying by institutional investors.

Virgin Galactic stock is ranked No. 43 in IBD’s Aerospace/Defense Group.


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Virgin Galactic Fundamentals

SPCE stock debuted on the NYSE on Oct. 28, 2019, after a reverse merger with “black check company” Social Capital Hedosophia Holdings.

Other space stocks followed suit including Spire Global (SPIR), Momentus (MNTS) and Astra Space (ASTR). Vector Acquisition’s shareholders approved its proposed merger with Rocket Lab on Aug. 20. It started trading under RKLB on Aug. 25.

Richard Branson’s Virgin Orbit announced Aug. 23 that special purpose acquisition company (SPAC) NextGen Acquisition Corp. II (NGCA) will take it public later this year in a deal that values the small satellite launch service provider at $3.2 billion.

Virgin Orbit and Virgin Galactic were split in 2017 so Virgin Orbit could focus on low-cost launch services for small satellites for the U.S. military and other customers. It already has a $35 million three-launch deal with the Space Force and is working with the Air Force on launches from Guam.

The emergence of more space stocks gives investors additional opportunities outside of Virgin Galactic.

Key Investors Unload SPCE Stock

Cathie Wood’s exchange traded funds launched a massive sell-off of Virgin Galactic shares in late March.

ARKX Space Exploration (ARKX) began with 672,000 shares back in March but dumped all Virgin Galactic stock by May. Her ARK Autonomous Technology & Robotics ETF (ARKQ) sold 1.65 million shares during May and no longer has a position.

After his first flight, Branson sold $300 million in Virgin Galactic stock, about 4% of the company, according to a regulatory filing Aug. 13. He still has an 18% stake and remains Virgin Galactic’s largest shareholder.

The asset sale came as the more infectious delta variant of Covid-19 spread. Branson plans to use the proceeds of the stock sale to help support its other Virgin travel businesses, Virgin Group told Bloomberg.

In early March, Chamath Palihapitiya, the chairman of Virgin Galactic, tweeted that he sold his 6.2 million-share personal stake. The stock was worth about $213 million. But he still owns 15.8 million shares via his SPAC, Social Capital Hedosophia Holdings, which took SPCE stock public.


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Ramp To Commercial Service

Virgin Galactic unveiled its SpaceShip III spaceplane in late March. The spaceplane will undergo its own flight test program. Then SpaceShipTwo, the WhiteKnightTwo mothership, and SpaceShipThree will undergo maintenance or improvement.

Virgin Galactic Cabin
(Virgin Galactic)

Branson’s July 11 flight showed off the interior of SpaceShipTwo. Aluminum and carbon-fiber seats are individually sized and the fabric was created by Under Armour (UAA), which also designed Virgin Galactic’s spacesuits. A large mirror in the back of the cabin allows astronauts to see themselves weightless during flight. The cabin also features 17 windows and 16 cameras.


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Virgin Galactic’s Space Ambitions With NASA

While making strides in commercial space tourism, the company has also been busy racking up deals with NASA. In June 2020, Virgin announced an agreement with the space agency to create an astronaut training program. SPCE stock jumped on the news.

Under the deal, the company will “develop a new private orbital astronaut readiness program” for customers looking to go to the International Space Station. Virgin also will find customers that want to buy astronaut missions to the station, book transportation to the ISS and perform on-orbit and ground resources tasks.

Last May, Virgin Galactic announced a separate deal with NASA to help develop a sustainable high-Mach supersonic aircraft.

NASA, which also performs aeronautics research, has been working on a high-Mach flight, one that doesn’t produce a sonic boom, under its Supersonic X-59 program with Lockheed Martin (LMT) Skunk Works. Such technology could make supersonic passenger service more feasible.

Virgin Galactic is eyeing that potential market too. Last summer, it signed a memorandum of understanding with Rolls-Royce to collaborate in designing and developing engine propulsion technology for Mach 3 commercial aircraft. Rolls-Royce built the engine for the Concorde, which flew at Mach 2.

The Rolls-Royce announcement included an initial design concept of the aircraft, which could carry nine to 19 passengers and fly at an altitude above 60,000 feet. Management has said that a Mach 3 aircraft has the potential for travelers to do a round trip in one day between 85% of the most frequently traveled global city pairs.


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Is SPCE Stock A Buy?

While IBD typically advises investors to focus on companies with strong earnings growth, newly public companies can also merit attention if they show strong revenue growth. Virgin Galactic, however, has neither.

While it has NASA contracts under its belt and its powered test flight reached space, commercial service has been delayed until Q3 2022. SPCE stock is not in buy range.

Bottom line: Virgin Galactic stock is not a buy under CAN SLIM criteria and it is not in a buy zone.

Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.

Follow Gillian Rich on Twitter @IBD_GRich for space news and more.

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