Virgin Galactic (SPCE) was upgraded Tuesday, but an analyst warned that the economic fallout of the coronavirus pandemic could hit space tourism demand. Virgin Galactic stock jumped.
XMorgan Stanley analyst Adam Jonas upgraded the stock to overweight from equal-weight, after the space company's stock fell 70% in recent weeks. Last month, Jonas said "a modest correction is overdue, and frankly, healthy, in our opinion."
Also Tuesday, he lowered his price target on Richard Branson's space tourism company to 24 per share from 30.
Jonas is bullish on Virgin Galactic's hypersonic point-to-point travel business. Last year, Boeing (BA) venture capital arm HorizonX took a $20 million minority stake in Virgin to help the space company develop a vehicle to travel Earth at hypersonic speeds.
"In our view, the shares feature biotech-type risk/reward where today's space tourism business serves as a funding strategy and innovation catalyst to incubate enabling tech for the hypersonic P2P opportunity," Jonas wrote.
Virgin Galactic Stock Takes Off
Shares shot up 26% to 16.32 on the stock market today, but are still more than 60% below their high reached last month. Boeing stock climbed 21%.
Virgin Galactic's space tourism business could take a hit as Covid-19 weighs on the stock market.
"Despite the healthy backlog ($80m and ~8k registrations of interest), deposits are largely refundable and aspiring 'astronauts' may reconsider discretionary spending in light of a weaker economic backdrop (Covid-19)," Jonas wrote. "The market for space tourism (the majority of our PT) is driven by demand for luxury experiences, which could be hampered in a post-Covid-19 world."
But Morgan Stanley still puts the overall hypersonic travel opportunity at a total addressable market of $700 billion-$900 billion by 2040, even after accounting for a near-term headwind of 20% due to coronavirus.
Applying a conservative estimate of a 10% market share in hypersonic travel, which is about average in the commercial aviation business, Jonas says Virgin Galactic has an $80 billion revenue potential by 2040.
Follow Gillian Rich on Twitter @IBD_GRich for space news and more.
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