Canaccord Genuity (TSX:CF, LSE:CF) has initiated coverage on Virgin Orbit Holdings Inc (NASDAQ:VORB) with a 'Buy' rating and a $20 price target.
Virgin Orbit is a commercial launch operator and emerging defense contractor that provides global airborne rocket launch services and manufactures hypersonic missiles/targets. Its launch method, which uses a 747 mothership to air-launch its rocket, does not require any static launch pads and can take off from anywhere on Earth without being subject to regular weather delays, radar range delays or civilian airspace regulations.
Canaccord's analysts said the ability to launch responsively with just weeks or days of notice has made Virgin’s LauncherOne rocket particularly attractive to government customers. LauncherOne is also being marketed to the Pentagon as a hypersonic missile interceptor, testbed and missile target, opening sales of LauncherOne up to DoD’s vast $11B missile defense and $3.8B hypersonics budgets.
READ: Space in 2022: what to expect and look out for
They noted that Virgin Orbit is one of just three commercial launch operators that has carried out multiple consecutive orbital missions - three to date - and being in the same exclusive club as Rocket Lab (RKLB) and SpaceX has enabled the company to aggressively take share in the small-launch market, which primarily serves the high-growth satellite services ecosystem developing in low-Earth orbit (LEO).
The analysts pointed out that orbital launch activity expanded by 30% in 2021 to 146 launches, while in 2020, the number of small satellites placed into orbit expanded by 209% year-on-year to 1,202.
They estimate that the Virgin Orbit has a substantial, rapidly growing TAM opportunity based on a forecast of more than 4,900 smallsats with a mass below 600 kg (which can be carried by LauncherOne as a payload) traveling into orbit in the year 2030.
The analysts said: "We believe that the Pentagon’s arms race with Russia and China to field hypersonic weapons provides LauncherOne with an exceptional market opportunity. As an orbital-class rocket, LauncherOne has already demonstrated speeds approaching Mach 23 (~17,500 mph) during flight, establishing it as a clear contender for procurement by the US Military for use as a hypersonic target to test missile defenses or as an air-launched missile interceptor."
Highly maneuverable and affordable
LauncherOne is also highly maneuverable and able to handle substantial loads and other aerodynamic forces due to its air-launch design at a very high angle of attack and ability to gimbal its engine at wide angles, they added.
"With a price of just $12M per rocket, LauncherOne is also a particularly affordable hypersonic vehicle relative to systems built by defense primes," the analysts pointed out.
They noted that Virgin Orbit is also working to leverage its established launch capability to enter the remote sensing satellite services market and the company has taken investment stakes in companies including SatRevolution, HyperSat and Horizon Technologies as it seeks to build an “ecosystem” of space-based sensors that can enable a combined “sensor fusion” offering to prospective customers of data including electro-optical, hyperspectral, SIGINT and IoT.
Virgin has also partnered with BigBear.ai to combine remote sensing data collected by its satellite constellation with artificial intelligence software to extract high quality insights for customers, the analysts added.
They said their $20 price target is calculated using a 7.1x EV/revenue multiple, applied to its 2024 estimates.
The analysts concluded: "We believe that Virgin Orbit’s pairing of a small launch vehicle (that is incorporating reusability) with a mothership for air launch should enable the company to scale more quickly and provide more rapid launch services relative to peers.
"Additionally, the opportunity for LauncherOne as an available hypersonic defense platform is exceptional, enabling the company to disrupt this new cutting-cutting edge field of warfare. While the company faces established competition in the satellite operator realm, Virgin Orbit’s ability to provide its own launch services with minimal delays enables it to deploy a constellation rapidly relative to competing satellite services companies."
Contact the author at jon.hopkins@proactiveinvestors.com