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Why Virgin Galactic Shares Jumped 13% on Monday
Actions of virgin galactic (NYSE:SPCE) shares soared 13.5% as of 11:45 a.m. ET on Monday, and for a more surprising reason: investment bank TD Cowen cut its price target by the space stock to $2 per share this morning.
Now, why would investors look at this report and consider it good news? Because despite the lower price target, Cowen says Virgin Galactic shares are still a buy.
Is bad news good news for Virgin Galactic?
As the analyst explains in a note covered in The Fly, Virgin Galactic confirmed in your latest earnings report that it is on track to build two new Delta-class spaceplanes by early 2026. With two planes flying weekly and charging more for tickets, the analyst predicts that Virgin Galactic will generate about $450 million in annual revenue and will have free cash flow. positive to boot.
All of these estimates are in line with what Virgin Galactic itself has already told investors, and are intended to allay concerns about what will happen before 2026 – specifically, the fact that Virgin Galactic will retire the only space plane currently flying in the world. next month and will spend the next two years without any means of generating any income.
Is Virgin Galactic Stock a Buy?
And so investors are presented with a kind of all-or-nothing bet on Virgin Galactic. In a worst-case scenario, two years without revenue could turn into three, four or more years if problems arise with Delta’s development, if the space plane doesn’t arrive on schedule — or is simply significantly delayed. Virgin Galactic could run out of money and go bankrupt before building a new business model.
Alternatively, everything could go exactly as planned, Virgin Galactic’s money could last just long enough to build and fly Delta, and the business could become profitable by the end of 2026. If Cowen is right and that’s the way it goes , Virgin Galactic shares could be worth almost double their current price.
The problem for investors, of course, is that they will have to wait another two years to find out if Cowen was right!
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The motley fool has a disclosure policy.
Why Virgin Galactic Shares Jumped 13% on Monday was originally published by The Motley Fool