Virgin Galactic will soar 113% for 5 reasons, according to BofA

• Bank of America initiated coverage on Virgin Galactic with a “buy” rating on Monday, setting a $35 price target, which represents 113% upside potential from Friday’s close.
• Shares of Virgin Galactic jumped as much as 16% on Monday following the positive analyst commentary.
• BofA called Virgin Galactic’s growth potential “unparalleled” despite it not yet being operational.
• Here are five reasons Virgin Galactic can move higher as it begins to serve customers in 2021, according to BofA.
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Virgin Galactic, the space exploration company that went public via a SPAC in 2019, has plenty of room for upside despite it not being operational yet.

That’s according to Bank of America, who in a note on Monday initiated coverage on Virgin Galactic with a “buy” rating and a $35 price target, representing potential upside of 113% from Friday’s close.

The positive analyst coverage from BofA, in addition to a positive note from Susquehanna, sent shares of Virgin Galactic soaring as much as 16% in Monday trades.

Virgin Galactic is focused on both space tourism (sending passengers into space) and hypersonic point-to-point travel (developing Mach 3 aircraft). 

BofA called Virgin Galactic’s growth potential “unparalleled,” but noted that there are risks investors need to be aware of, like the potential of a fatal accident, which could suppress consumer demand for briefly flying into space.

Here are five reasons Virgin Galactic can move higher as it begins to serve customers in 2021, according to BofA.

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1. Lack of competition.

“Virgin Galactic has a unique business with leading market position. The only sub-orbital space tourism competitor in existence (Blue Origin) has not ever flown passengers,” BofA said.

2. Extraordinary Growth Potential.

“The long-term opportunities in space tourism and hypersonic point to point travel are nearly revolutionary. Purchasing shares of Virgin Galactic today offers investors the opportunity to get into a company at the very beginning of its growth story. No company in our coverage universe has anywhere near comparable growth potential,” said BofA.

3. Experienced and compelling management team.

BofA noted that Virgin Galactic has a strong management team that includes Chief Space Officer George Whitesides, who spent more than 20 years at NASA, and CEO Michael Colglazier, who spent more than 30 years at Disney, most recently managing its international parks division.

4. Vertical integration capabilities.

“Virgin Galactic’s technology and vertical integration capabilities are unparalleled. There is no company in the world that designs and builds its own aircraft end-to-end and then operates that vehicle commercially. In our view, the steps Virgin Galactic has taken over the past decade to vertically integrate somewhat mitigate execution risk,” BofA said.

5. Robust total addressable market.

“The company’s target audience is adults with a total net worth of over $10mn, of which there are currently 2mn worldwide. However, we note that the company has mentioned that many customers have an estimated net worth of materially lower than $10mn (~$1mn+). In this case the future astronauts are likely space enthusiasts with a lifelong dream of experiencing the “planetary perspective,” BofA said.

Still, there are other risks associated with a high-flyer like Virgin Galactic, according to BofA. Investors should take note of these risks, including no financial or operating history, and valuation being a challenge since there are no pure comparable companies. 

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