What happened
On Wednesday, shares of Virgin Galactic (SPCE 4.25%) appeared to take a punch when analysts at investment bank Bernstein cut their price target on the space tourism pioneer by more than half -- from $22 all the way down to $10.
It should have been bad news. Instead of going down, however, Virgin Galactic shares are headed higher this afternoon, and were up 5.4% as of 1:05 p.m. ET.
Image source: Virgin Galactic.
So what
How does that make sense? Well, despite cutting its price target so steeply, Bernstein didn't actually downgrade Virgin Galactic stock, leaving it rated market perform, the equivalent of a neutral rating.
What's more, the analyst's new price target -- $10 a share -- is actually above the $9.20 or so price at which Virgin Galactic trades today. So, far from considering the stock overpriced, Bernstein actually sees Virgin stock as priced at an 8% discount to its true value. This is why the stock is rising today.
Now what
That being said, it's not all unicorns and rainbows at Virgin Galactic. As TheFly.com reports, Bernstein took Virgin Galactic to task for warning that it is going to need more cash to finance its continued development, and then almost immediately raising $425 million through a convertible-bond offering last month. Early warning notwithstanding, the quickness of this cash raise seems to have taken the analyst by surprise, and indicated "that near-term cash requirements are greater than expected."
Furthermore, Bernstein still believes that there are "few clear upside catalysts" to lift Virgin Galactic stock substantially higher in the near term. Indeed, investors might have to wait as long as 2027 to see meaningful gains, because Virgin Galactic needs to finish developing its Delta class space planes in order to have a chance of breaking even on a cash-flow basis.
In short, if you own Virgin Galactic and like the looks of today's price spike, enjoy it while it lasts, because such gains might be few and far between. And 2027 is still a long way away.
