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Morgan Stanley says the opportunity for this stock is out of this world.
There’s finally a way to invest in tourism to space with Virgin Galactic (NYSE: SPCE) shares now trading publicly, and Morgan Stanley just turned bullish on the stock.
Early this week, Morgan Stanley analyst Adam Jonas initiated coverage of the stock, giving it an Outperform rating and a $22 price target – 140% higher than the current price.
In a note to clients, Jonas said he sees a “biotech-type risk/reward” with Virgin Galactic, but it’s not necessarily the space tourism niche that has him excited about the stock.
Instead, it’s what he calls “the third phase of the VG business model,” the hypersonic point-to-point (P2P), air travel the company is working on. “A viable space tourism business is what you pay for today… but a chance to disrupt the multi-trillion dollar airline [total addressable market] is what is really likely to drive the upside” for the stock, Jonas said.
He also added that the stock’s biotech-like risk/reward in “today’s space tourism business serves as a funding strategy and innovation catalyst to incubate enabling tech for the hypersonic P2P air travel opportunity.”
“While some investors have described high-speed hypersonic P2P air travel opportunity as ‘the icing on the cake,’ we see Hypersonic as both the cake and the icing, with Space Tourism as the oven,” Jonas said in the note.
Jonas did acknowledge that there are risks and unknowns with Virgin Galactic, “including the possibility of fatal accidents, regulatory obstacles, limited market acceptance, competition, insufficient economics, and liquidity constraints. Taken together, we think the risks are offset by the potential scale of the reward,” he said.
The Morgan Stanley analyst isn’t the only one bullish on Virgin Galactic shares. ARK Invest analyst Sam Korus wrote in a note last month that he’s also excited about the company’s hypersonic P2P air travel opportunity.
According to Korus, as many as 2.7 million people could be willing to pay up to $100,000 for a long-distance hypersonic flight that shaves hours off the normal flight time.
“That market could scale to $270 billion in revenues annually,” Korus added.
Over the next six to nine months, Virgin Galactic expects to by flying its first customers to space. Jonas estimates that the company can ramp up its flight offerings to serve more than 3,000 passengers by 2030.
And finding customers to fly shouldn’t be an issue. Virgin Galactic said that around 600 people have already purchased tickets and agreed to pay between $200,000 and $250,000 for the chance to fly to the edge of space, with another 3,500 people already on the waiting list.
For Jonas, “the addressable market for space tourism, while niche, is supported by a range of industries (e.g., yacht charters and luxury cars.”
“Space Tourism’s goal over the next year: be safe, stay funded,” Jonas said. “We believe the key catalyst over the next 12 months will be sending even one customer to space and returning safely.”
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