Shares of Virgin Galactic were moving towards a five-month low after UBS analyst Myles Walton recommended investors sell, after another long pushout of revenue-generating test flights was announced weeks before one large chuck of shares becomes available for sale.
Walton downgraded the space tourism company to sell, after falling neutral since July 5. He slashed his target stock price by 42% to $15 from $26. The new target implied a further 24% downside from current levels to Notwithstanding.
The stock SPCE dropped as much as 5.0% to a midday low of $19.00, before paring some losses to be down 1.2% in intraday trading. It has fallen 64.6% since closing at a four-month high of $55.91 on 25 June.
The downgrade comes one session after the stock tumbled 16.8% following the company's announcement that commercial space flights would not begin until late 2022 after an issue with some materials was found. Walton noted that announcement was made about a month after the company had delayed a late September flight to late October due to a supplier's part issue.
Walton said that although the company is surely taking the right step to bring safety first, the start and stops of flights, coupled with longer turn times of current generation spaceships shows the difficulty in providing investors with reliable operations.
The event path for the company is now disjointed for the better part of the next year and with 24% of shares outstanding 32% of the float exiting their lockup period at the end of the month we expect further pressure ahead to the stock, Walton wrote to clients in a note to investors.
Walton has now swung from bearish to bullish on the stock in five months, over a time that the stock had nearly tripled then lost all of those gains, and then some.
On July 6, he raised his price target to buy from neutral but downgraded to $36 from $45 citing valuation after the stock had more than doubled in a little over a month. The following Walton s upgrading of the stock to buy from neutral on 20 May but trimmed his price target from $40 to $36 from $40, saying that valuation was now attractive as investor fears over test-flight delays and competitive pressure were overblown.
The fact that most of the remaining insider stakes were locked up through October was another reason to be bullish. A lockup refers to an agreement by insiders not to sell the shares they have known for a previously agreed upon period. In fact, the stock closed on the day Walton turned bullish at $19.81, or just 0.2% above current levels.
With the start of cumulative operations pushed to the fourth quarter of 2022, it moves the commercial delay to 2 years from the mid 2020 target in the company when it went public two years ago.
With a cumulative delay longer than the time Walton has been public, it ll be a challenge to get too optimistic about flight cadence and we further reduced our outyear trajectory, wrote Walton.
The stock has now dropped 34.5% over the past three months and has dropped 11.9% in the past 12 months. In comparison, the S&P 500 index SPX and NASDAQ-Shares has soared 3.5% the past three months and gained 28.6% the past year.