stock got a rare double downgrade–from Buy to Sell–from
Bank of America,
following a blindingly rapid surge in the price. It is a reminder that although things are looking up for the space-tourism company, there are still risks investors should consider.
Analysts usually upgrade or downgrade stocks one notch at a time, going from Buy to Hold, and from Hold to Sell. BofA’s Ronald Epstein went directly from Buy to Sell after the price recently blew past his $41 target.
On Wednesday morning, the stock was down 6.7% to $43.89, though it has rallied about 50% over the past month. The
0 was modestly lower on Wednesday morning, while the
Dow Jones Industrial Average
was a bit higher..
Investors who blinked may have missed the gain. Shares were below $15 in May as Virgin Galactic struggled with flight-testing delays. Management’s getting testing back on track, which led to the receipt of a Federal Aviation Administration license to carry paying customers, sent the stock back above $55 less than a week ago.
FAA approval is a big deal, but analysts expected the news. “We continue to see Virgin Galactic as a beneficiary of the new commercial space race,” wrote Epstein in his downgrade report. “However, we believe this premium is already priced into the stock and will dwindle as more commercial space companies go public.”
Competition is coming. Blue Origin, for instance, is about to take founder
his brother, and a commercial passenger who paid $28 million for the ride, into space.
Epstein believes space is risky and that investors should build in a little cushion for delays and other potential bad news. Galactic stock, for instance, was hammered after the company disclosed in late February that it was struggling to manage electromagnetic interference on test flights. Fixing that problem delayed the start of commercial operations.
Epstein isn’t the only analyst who downgraded the stock after its epic rise. Alembic Global Advisors analyst Peter Skibitski cut his rating to Hold this week. Now three out of nine, or 33%, of analysts covering Galactic rate the shares at Buy, compared with six of 10 as June began. The average Buy-rating ratio for stocks in the S&P 500 is roughly 55%.
The average analyst price target is about $32 a share, an increase of close to $2 since approval to carry paying customers was granted.
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Write to Al Root at [email protected]