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Virgin Galactic Reported Results, but That’s Not Why the Stock Rose Monday – Barron’s


What a couple of days for space investors. First, SpaceX brought NASA astronauts back from a two-month mission to the International Space Station. Then space-tourism pioneer Virgin Galactic
announced second-quarter results after the close of trading Monday. Results were okay, if lackluster, but it was a side dish for Virgin Galactic (ticker: SPCE) investors that got shares moving Monday. The space tourism pioneer is branching outsooner than expectedinto hypersonic travel. Now analysts and investors will have questions for management about cash allocation and hypersonic timing when management speaks later this evening.For starters, there was the second-quarter report. Virgin Galactic lost 30 cents per share. Wall Street expected a loss of 26 cents. But earnings dont matter because Virgin Galactic doesnt generate sales yet.
The company is planning to ramp sales starting in late 2020 and early 2021 by ferrying tourists to the edge of space and back.
Back in May, the stock jumped after the company reported a 30 cent loss per share for the first quarter. During that quarter, Galactic launched an initiative for tourist-astronauts to reserve a place in Galactics flight queue. The company received commitments from 400 potential tourists representing up to $100 million in sales.
The updated commitment number is 700 astronauts. Representing sequential growth of 75%. The press release might have confused investors. The are an additional 600 future astronauts that already made reservations, outside of the first-quarter initiative called one small step.
Its possible 75% growth wasnt enough for investors. Its also possible there was some confusion. Virgin Galactic stock is down about 6% in after-hours trading.
Before second-quarter results were announced, Virgin Galactic stock was on the move Monday, up 7%. Early Monday, before the market opened, the company had unveiled plans for a Mach 3 delta-wing aircraft with capacity for 9 to 19 people traveling at an altitude of 60,000 feet.
Thats a mouthful. A delta-wing is essentially a triangle. Mach 3 is three times the speed of sound, or roughly 2,300 miles per hour.
Hypersonic flightwhich is flight at multiples of the speed of soundhas always been a part of Galactics business plan. Investors, however, didnt think announcements would come this early.
Despite positive stock reaction, not everyone loves what they heard Monday. Vertical Research Partners analyst Darryl Genovesi wrote he was dissatisfied and disquieted by the Mach 3 announcement. We had expected a super cool but still decades-away white-whale spaceship concept, capitalizing on [Galactics] unique core competency, added the analyst in a Monday afternoon report. Instead, pictures and mission description suggest an undifferentiated supersonic air-breathing business jet concept.
It was too soon and not enough for Genovesi. For now, however, he is a Galactic bull, rating the stock at Buy. His price target is $29 a shares.
Galactic shareholders might be expected to react optimistically. Its been a great year for Galactic stock. Shares are up more than 100%, far better than comparable returns of the
S&P 500
and
Dow Jones Industrial Average.
Despite the run, Wall Street still likes the stock75% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the Dow is about 55%. The average analyst price target, however, is right about where the stock is trading. Analysts may have to raise target prices or cut ratings after the quarterly numbers and the Mach 3 jet announcement.
Management hosts a conference call for analysts and investors at 5 p.m. to discuss results and, no doubt, to discuss Mach 3 travel.
Rolls-Royce
(RR/.London) is an early partner on Galactic Mach 3 engines. Rolls engines powered the Concorde supersonic jet.
Rolls stock however, closed down 0.5% in overseas trading. But it did rally into the close after the Galactic news was released.
Write to Al Root at allen.root@dowjones.com

Source : https://www.barrons.com/articles/virgin-galactic-reported-results-stock-rose-monday-51596489011

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