Virgin Galactic Holdings Inc. was downgraded by UBS analyst Myles Walton, who cited concerns over valuation as the stock has more than doubled since he turned bullish about six weeks ago.
Walton cut his rating back to neutral, after upgrading the stock to buy on May 20. He raised his price target, however, to $45 from $36, but that target is now 3.0% below current levels.
The stock
SPCE,
+2.94%
climbed 3.3% in afternoon trading, and has traded in an intraday range of down 1.6% to up 9.9%.
Walton said his upgrade in May followed a selloff on fears of test-flight delays and competitive pressures, both of which he said have fully receded. Walton said he remains optimistic, particularly following the recent operator license update by the Federal Aviation Administration.
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From the day Walton upgraded the stock on May 20 through Friday, the stock had soared 126.9%. Over the same time, the S&P 500 index
SPX,
-0.43%
had gained 4.6%.
“Though we view this catalyst chain as appealing, at the stock’s current levels, we do see a lot priced in,” Walton wrote in a note to clients.
Walton said a number of coming test flights, particularly the flight scheduled for July 11 in which founder Richard Branson will be on board and the opening of ticket sales, will provide support for the stock in the coming months. After that, a lack of expected catalysts could weigh on sentiment.
“Looking beyond the summer of flights, there is likely to be less news flow in the fall as the flight program stands down for maintenance into 1Q22,” Walton wrote. Moreover, share lockups of the original investor base expiring (~30% of float) could add some pressure.”
The stock had tumbled 19.6% last week, to snap a six-week win streak in which it skyrocketed 245.6%.
With commercial operations set to begin in earnest in early 2022, Walton said the company will have to encourage confidence in their 400 flights-per-year target, with both a plan on capital expenditures and a revealing of its rate-ramp profile.
His current target for the stock includes an assumption that a ticket to space will cost $300,000 to $350,000.
