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Why Shares of Virgin Galactic Are Higher Today

By Lou Whiteman – Sep 28, 2020 at 11:13AM

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The space tourism stock gets rave reviews from two Wall Street analysts.

What happened

Shares of Virgin Galactic Holdings (SPCE -5.78%) rocketed 20% higher on Monday morning after the stock received a pair of upgrades. The sky's the limit for space tourism, according to two Wall Street banks, causing investors to climb aboard Virgin Galactic.

So what

Virgin Galactic is a pre-revenue company that aims to sell tourists a brief trip into space for upward of $250,000 apiece. The company has a backlog of deposits and lots of potential, but is still very much a speculative venture.

Analysts at Susquehanna and Bank of America view the glass as half-full when it comes to Virgin Galactic. Susquehanna analyst Charles Minervino on Monday assigned a positive rating on the stock, calling the company "an innovator of space technology" that will be able to tap into interest in space tourism.

Rendering of the interior of a Virgin Galactic spaceship.

A rendering of the interior of a Virgin Galactic spacecraft. Image source: Virgin Galactic.

Ronald Epstein at Bank of America, meanwhile, started the stock with a buy rating, praising the company's "unparalleled" vertical integration as a maker of spacecraft, propulsion systems, and the in-flight avionics.

Minervino set a $20 price target for Virgin Galactic, while Epstein set a $35 target. Shares of Virgin Galactic traded at just under $20 per share as of 10:30 a.m. EST on Monday.

Now what

The analysts both acknowledged the risks to the business, with Epstein noting that a "fatal accident, though unlikely," could have severe ramifications, and Minervino saying he does not see Virgin Galactic posting positive free cash flow until 2024 at the earliest.

Space is risky, and space tourism, though exciting, is unproven. Investors are betting that as Virgin Galactic matures, it can turn into a high-growth stock. That's understandable. Just be sure to understand the risks, and limit stocks like Virgin Galactic to a small part of a well-diversified portfolio.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

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