Virgin Galactic lands a $5 price target from Morgan Stanley due to lack of near-term catalysts

Morgan Stanley slashed its price target on Virgin Galactic Holdings (NYSE:SPCE) to $5 from a prior level of $35. The firm’s pessimism is tied to the lack of near-term catalysts.

Virgin Galactic (SPCE) completed its last flight in June and does not plan to return revenue-generating passengers to the sky until around 2026, when the first new Delta-class spaceship is expected to come online. Analyst Kristine Liwag note that while incremental visibility into the longer-term business plan is encouraging, successful production of the first two Delta ships and their ability to sustain high-frequency flights must first be proven to realize SPCE’s initial fleet economics of around $450 million of annual revenue at 20% to 25% margins.

Liquidity was also highlighted as a concern for Virgin Galactic (SPCE) since it ended Q2 with ~$821 million of liquidity, but guided for free cash flow burn rate of $115 million to $120 million in Q3, and suggested the burn rate is likely to pick up sequentially in Q4.

On Seeking Alpha, analyst Jason Ditz issued a Strong Sell rating on SPCE in late August. “Even the sensible balance sheet that the company has right now looks set to evaporate in less than a year’s time, and there is absolutely no indication that the company’s management is looking to revise its business model to be something that could be a profitable venture and something reasonable to do with all the money they still haven’t burned through,” he warned.

Shares of Virgin Galactic (SPCE) were down 0.42% in premarket trading on Tuesday to $7.13 vs. the 52-week range of $5.27 to $54.60. Short interest on SPCE stands at 22.6% of the total float.