Influential US broker backs Rocket Lab
One of the largest wealth managers in the US has initiated coverage on Rocket Lab. And for founder and minority shareholder Peter Beck, the news is all good.
In a January 12 research note, Morgan Stanley gave Rocket Lab a “buy” or “overweight” rating, with a 12-month target price of US$17.00 (the Nasdaq-listed stock closed Friday at US$10.42 for a US$4.86 billion ($7.1b) market cap.
Rocket Lab listed at US$10 on August 25 following a merger with a spac or shell company. Its shares have been volatile, in line with the space sector, hitting a high of US$20.72 in early September but recently falling away.
A team of analysts from the investment bank called the Kiwi-American company “A SpaceX alternative.”
They wrote, “Rocket Lab offers investors high-quality exposure to the space race. While execution and competitive dynamics drive a wide range of outcomes, risk-reward skews to the upside.
“The Space Race is back. This time, though, it is playing out not just between nation-states jockeying for geopolitical advantage, but also between commercial companies racing to secure first-mover advantages in zero gravity,” Morgan Stanley’s team wrote.
“Thanks to innovations in miniaturisation and computing power, satellites are getting smaller and as their use cases grow, megaconstellations are on the rise. To support the commercial and military growth of space-based assets, space launch is a key gateway.
“We see Rocket Lab’s track record of launching over 100 satellites to orbit as a stand-out among peers and view company efforts to increase rocket re-usability (and thus lower cost) as game-changing.”
The US$17 price target was Morgan Stanley’s “base” projection, which it headlined, and which underpinned its “overweight” rating.
It also outlined two alternative scenarios. One is a “bull case” for US$40, based on Rocket Lab being able to reach its target of 35 launches per year by 2026 — which assumes the company hits its technical marks, and the small satellite market grows as predicted. The other is a “bear case” that saw Rocket Lab sinking to US$6 if “Rocket Lab struggles to scale Electron and Neutron’s roll-out is delayed.” The Neutron is Rocket Lab’s much larger rocket, in development, with its first launch scheduled for 2024. It will launch exclusively from the US.
The US military’s new Space Force wing recently chipped in US$24.35 million toward the development of Neutron’s upper stage. Morgan Stanley estimates the Neutron’s total development cost will be between US$200m and US$250m (Rocket Lab’s August 25 listing raised US$750m, which founder and CEO Peter Beck said would go toward the development of the Neutron, plus acquisitions that would help diversify Rocket Lab’s business).
The Morgan Stanley team gives the Neutron good notices for a number of features, including its re-usability. If the Neutron first-stage is able to land at its launchpad as planned, that will be a cheaper and more timeefficient model that a rocket landing at sea (Space X’s Falcon 9 boosters can land themselves, but on a barge out to sea).
Morgan Stanley also praises Rocket Lab’s ongoing efforts to become a full-service space transportation company, through acquisitions and in-house developments to build its space services division, centred on its Photon spacecraft.
Later this year it will ferry a Nasa satellite into lunar orbit in a historic first Moon launch from NZ. In 2024, two Photons, commissioned by Nasa, will go into orbit around Mars.
Rocket Lab reported a net loss of US$88m for its September quarter, versus its year-ago net quarterly loss of US$13m as operating costs and R&D expenses surged while its Covid-hit revenue fell to $5.0m for the quarter from the year-ago US$11m.
But it said its backlog of contracts — which was worth US$60m in June 2020 — had swelled to US$237m.
Investors also took heart at the firm forecasting a revenue bump to US$23m-US$25m for its December quarter, and space systems revenue for the September quarter rose 360 per cent over the year-ago period to represent 27 per cent of total revenue for the nine months to September 30.
Rocket Lab also guided to a narrower net loss of US$24m — US$26m for its fourth quarter (the firm has previously flagged it will spend several years in the red).
Increasing the percentage of its revenue that comes from space systems — satellites and spacecraft — is core to Rocket Lab’s growth strategy and its aim to be a full-service space transportation company.
Its aim is for space systems to generate 40 per cent of its revenue by 2027 — a year in which it has forecast operating earnings of US$505m on US$1.57b turnover.
In mid-November, it acquired Planetary Systems Corporation (PSC), a Maryland-based spacecraft separation systems, for US$42m
The deal was announced with the ink barely dry on its purchase of Advanced Solutions, a Coloradobased maker of mission simulation systems, and navigation and control solutions, for US$40m — plus a potential US$5m if it reaches performance targets this calendar year.