UBS initiated coverage of Virgin Galactic on Monday with a buy rating and analysts there predict the stock will climb more than 50% over the next year as space tourism eventually becomes an $800 billion industry by 2030.
The firm began its coverage of Virgin Galactic with a bullish stance, assigning the stock a buy rating and a price target of $25 per share.
The space tourism company’s stock currently trades at around $18 per share, after rallying more than 12% on Tuesday and over 45% so far in 2020.
While Richard Branson’s Virgin Galactic is in the midst of a billionaire space race with Elon Musk’s Space X and Amazon CEO Jeff Bezos’ Blue Origin, it is the only one of the three that is publicly listed.
UBS sees Virgin Galactic as the “only way for consumers to gain entry into the ~560 member astronaut club in the next 5 years,” and the firm expects the company to begin commercial flights next year.
Citing a “robust backlog of customers” and “positive indicators around luxury spending,” UBS sees demand far outstripping supply for many years after Virgin Galactic starts commercial operations.
The firm expects Virgin Galactic’s annual ticket sales to quadruple within just a few years, at a compound annual growth rate of 300% through 2024.
Although “there will be competitors,” Virgin Galactic has an advantage in its “life-long brand connection, in addition to an operating model supporting a uniquely high flight-rate,” UBS analyst Myles Walton said in his note.
“Going to space isn’t routine. In fact, it’s exceptional; but the entrance of billionaires into the space realm makes it more plausible now,” UBS analysts said in the recent note. “Given the level of advanced reservations and broad public interest in space, we believe there is demand for a safe, reliable option for space travel.”
Laura Forczyk, founder of space consulting firm Astralytical, criticized UBS’ outlook as too optimistic. Virgin Galactic “will not be flying 1,500 passengers by 2024,” she wrote on Twitter. “The market is still very young and the pace is slower than snails.”
UBS predicts space tourism will become a $3 billion a year industry by 2030—and the “space economy” will grow from being worth $244 billion to $805 billion during that period.
Virgin Galactic founder Richard Branson has a net worth of $4.5 billion, according to Forbes’ estimates. Bezos, the world’s richest person, is worth $188.6 billion, while Elon Musk has a net worth of $74.8 billion.
What to watch for
The space tourism company will fly its founder, Richard Branson, into space during the first quarter of 2021. Virgin Galactic has two more test spaceflights before doing so, however, with the first of those scheduled for October 22, according to CNBC.
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