Stock of the Week

Virgin Galactic

June 3rd 2020

Virgin Galactic
NYSE Symbol: SPCE
Industry: Aerospace/Outer Space
Price as of 5/31/20: $17.04

The aerospace industry is in uncharted waters with COVID-19 limiting the number of flights for the major airlines. While the federal government and Congress have stepped up to help the airlines and the rest of the sector to avoid numerous bankruptcies, the road to recovery will be long. We have recently highlighted more defensive aerospace plays like Raytheon Technologies and Lockheed Martin, but this week we will highlight a more speculative name in the space industry, Virgin Galactic.

Elon Musk's firm, SpaceX has brought space travel front and center with the successful launch of two U.S. astronauts into orbit docking at the International Space Station. This was the first-time astronauts flew into outer space from American soil since 2011 and the first time from a privately held company. Long term, SpaceX has plans to commercialize space travel along with Virgin Galactic and Amazon's Blue Origin. Many are calling space travel the next frontier as the Morgan Stanley analyst believes space-based commercial travel market could be worth $800 billion in a couple of decades.

Virgin Galactic is building what they call the new generation of space vehicles that can briefly leave the outer atmosphere with the first commercial flight targeted for the first half of 2021 depending on how well it navigates its remaining regulatory hurdles. Currently, Virgin Galactic has around 8,000 people reserved to fly into outer space, paying as much as $300,000 which would translate into $2.4 billion revenue. In the next 2-3 years, Virgin Galactic will try to drastically reduce the ticket size to $50-100,000 (equal the private jet charter flight price) to expand the customer based while also further expanding sales.

Virgin Galactic has also partnered with Boeing and NASA to help further transform commercial space flight. NASA wants to work with Virgin putting their researchers aboard the crafts to conduct scientific experiments which should provide dependable revenue. Virgin Galactic is also hoping Boeing can help diversify the company for opportunities in hypersonic travel. Hypersonic travel could become a good size portion of the $600 billion commercial passenger market in the coming decades.

Sir Richard Branson made news recently selling over $500 million or 20% of his stake in Virgin Galactic in order to prop up his own Virgin airline and leisure interests while other insiders have been buying. In the last two months, the CEO and COO have collectively bought $240,000 worth of stock. In the last 12 months, Chairman of the Board Chamath Palihapitiya made the biggest insider purchase of$100 million worth of stock at around $10 a share where the stock started the year.

Before COVID-19 took hold, Virgin Galactic's stock was performing well, rising four-fold to over $40 a share before coming back to earth in March. Going forward, investors and mutual funds will want to have exposure to this new industry. Virgin Galactic is not a conservative investment, but more of speculative play on the new frontier of space travel that could provide impressive returns in the coming years and decades.