Morgan Stanley recommends buying Virgin Galactic stock


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Capitalism in space: A report yesterday by Morgan Stanley recommended the purchase of Virgin Galactic stock because of its claim that it might repurpose its SpaceShipTwo suborbital spacecraft from space tourism to point-to-point transportation on Earth.

Morgan Stanley began coverage of Virgin Galactic’s stock on Monday with an overweight rating, saying the space tourism company’s shares will soar as it proves out a long-term plan of flying people around the world at hypersonic speeds. “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,” Morgan Stanley analyst Adam Jonas wrote in a note to investors.

…Morgan Stanley’s price target of $22 a share represents a 203% increase from Virgin Galactic’s current levels. The company outlined a three phase plan to investors during its roadshow earlier this year. While Morgan Stanley gave a $10 a share valuation to Virgin Galactic’s space tourism business, phases one and two of its plan, the firm sees $12 a share in value from phase three: Hypersonic point-to-point air travel.

The report caused the space company’s lagging stock to surge yesterday, though its value today ($9.41) remains well below its opening price ($12.53).

Personally I think anyone who takes Morgan Stanley’s advice is a fool. Virgin Galactic has spent fifteen years trying to develop this suborbital spacecraft, and has still not flown any customers. Moreover, the design is underpowered, which means I have serious doubts it could be used for any point-to-point transportation. To make that happen will require a complete redesign.

This recommendation by Morgan Stanley also suggests that this is not my investment firm of choice. The analysis here seems very poor and somewhat ignorant of the technology involved, and suggests instead that it was aimed merely to cause a jump in the price so that some of Morgan Stanley’s customers could get rid of their already-purchased stock without too much loss.

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9 comments

  • M Puckett

    Asinine advice. The design is optimized to kiss the sky, not make a long jump.

    I am a non-engineer and I can easily see how idiotic this advice is.

    We are talking the difference between a orbital Titan and an ICBM Titan for point to point. If you are not going trans-continental or intercontentinal, there is no point to point to point, it becomes patently pointless.

    SpaceshipTwo might bee the bees knees if people want a two stage ride from White Sands to Taos. I sure the business case will close easily. /sarc

  • wayne

    One of the questions to be asked about Morgan Stanley’s recommendation, is how many shares they trade for their own account and what have they been doing with them recently?

  • wayne

    “Pump and Dump” Schemes
    One Minute Economics
    https://youtu.be/YJVtgv6Zmq4
    1:24

    –personally, I never buy individual stocks. Highly recommend (any number of) Index funds from Vanguard, THE low-cost methodology to buy an entire market for miniscule advisory & management fees.

    “Bull’s & Bear’s make money, Pigs get slaughtered.”

  • wayne

    The Wolf of Wall Street
    Aerotyne Phone Sale Scene
    https://youtu.be/nJzo5TDfamk
    4:38

    (Some adult content, but a great scene.)

  • Nonsense. For anything other than trivial distances, a point-to-point transport is actually a fractional-orbital transport. (Note: In the “trivial distance” category, XCOR delivered a sack of mail by piloted rocket, from Mojave to California City, nearly two decades ago. That record still stands.)

    Unless you really enjoy watching your fuselage melt around you, you have to spend all the delta-V necessary to claw your way into orbit… then deal with all the atmospheric heating effects on the way DOWN from orbit… all within 45 minutes or so. So your costs aren’t going to be materially different from an orbital launch. Add in the amount of time getting to a suitable launch site, dealing with TSA, listening to the flight attendant’s lecture, getting your bags at the other end, sitting in an Uber to your destination… there just aren’t enough people in the world willing to spend a few million dollars to save a couple of hours door-to-door. For way less money, charter a Gulfstream G650 and get a good night’s sleep in the back.

    The folks at Morgan Stanley are either ignorant or malicious. I don’t know which way to place that bet.

  • M Puckett

    Let me add another data point RE: Morgan Stanley. They are still knocking it out of the park today:

    https://www.nextbigfuture.com/2019/12/spacex-starlink-satellites-cost-well-below-500000-each-and-falcon-9-launches-less-than-30-million.html

    Grossly overestimating the cost to launch the Starlink constellation.

  • Edward

    From the article: “Morgan Stanley forecast $800 billion in annual sales for hypersonic travel by 2040, or just about two decades from now.

    Forget all the technical stuff; Morgan Stanley expects us to wait two decades for the price to triple? Two decades? That is their advice?

    This due to Virgin’s suggestion that they might do point to point someday in the far distant future, not due to a plan to or even that they are investigating the possibility.

    https://www.virgingalactic.com/vision/
    In time, we expect to be operating a variety of vehicles from multiple locations to cater for the demands of the growing space-user community. Whether that be transporting passengers to Earth orbiting hotels and science laboratories, or providing a world-shrinking, transcontinental service – at Virgin Galactic we will always be striving to open space to change the world for good.

    I think that the better investment is for the near future of Virgin’s suborbital flights, both tourist and scientific. What does Morgan Stanley think will happen to the price when tourist operations begin in 2008 — oops — 2012 — oops — 2014 — oops — 2017 — oops — 2018 — oops — …

    Well, I guess that investment would depend entirely on Virgin actually beginning that service sometime in the near future. Such as the promised next six to nine months. Like we have been hearing for the past — how many years? They may be striving, but it would sure be nice for them to finally start opening space to change the world for good.

  • Col Beausabre

    Wayne hits the nail on the head and I totally agree with him. My reaction on reading Bob the Zee’s post was “Pump N Dump”

    Stephen – “The folks at Morgan Stanley are either ignorant or malicious.”

    There’s plenty in category one on the Street and some in category two, but the real cause is that their job is to SELL STOCK, not advise you on wise investing. Think of them as used car salesmen in better suits and fancier offices and you won’t go far wrong. Most of their income is on commission, there are often in-house competitions for money and perks (free vacations, etc) for selling the most of a certain stock in a given period and their annual bonus (a big portion of their annual take for the Wall Street crowd) depends on how much they have flogged in the previous year.

    I speak from the position of having a MBA with a concentration in Finance and Accounting and a decade in Corporate Treasury – the part of the company that deals with the Jackals of Wall Street – for a Fortune Fifty firm after I retired from the Army

    Best advice – pick a diversified mutual fund. A good deal of my money is now in a fund that deals in tax-exempt municipals – but that meets my goals as far as return and risk go, yours may differ. Talk to an independent (not working for the Street) financial advisor. https://www.forbes.com/sites/feeonlyplanner/2018/01/29/six-mistakes-people-make-when-hiring-a-financial-advisor/#6690aeba3ec8

  • wayne

    During the ‘housing crisis’ of 2008, Morgan Stanley lost $37 billion dollars, then they proceeded to borrow over $100 billion dollars from the Federal Government.

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