Morgan Stanley sees more downside for Virgin Galactic shares and cuts its price target by Investing.com

Investing.com — Morgan Stanley cut their price target on Virgin Galactic significantly on Tuesday, reflecting a more pessimistic outlook on the company’s future.

The investment bank cut its target for the stock from $35.00 to $5.00 per share, citing ongoing challenges and a lack of near-term catalysts for the stock.

The drastic price target adjustment comes amid Virgin Galactic’s commercial flight hiatus, which is expected to last until around 2026.

According to Morgan Stanley, “the year-over-year decline in inventory (down ~85%) reflects the realization that the attractive business model/economics is based on delivering new fleet on time and at cost.”

The company completed its last flight in June 2024 and does not anticipate resuming revenue-generating flights until the first Delta-class spacecraft enters service, Morgan Stanley noted.

The bank points out that SPCE’s current strategy and fleet development face substantial obstacles.

Company analysts are skeptical about the company’s ability to meet its ambitious goals for the Delta-class spacecraft, which are critical to its long-term revenue projections.

“Successful production of the first two Delta vessels and their ability to support high-frequency flights must first be proven to achieve SPCE’s ‘initial fleet’ economics,” they add.

This economic model, which projects $450 million in annual revenue at 20-25% margins, is contingent on achieving a constant flight rate by the end of 2027.

The firm also points to recent stock performance as a red flag. Since announcing a reverse stock split on June 12, 2024, Virgin Galactic shares have fallen about 58%, compared to a 4% gain in .

Shares are down about 85% year to date, which Morgan Stanley says raises questions about the viability of its business model in light of technology risks and extended timelines.

The bank’s revised outlook incorporates greater conservatism in its forecasts, with SPCE not expected to post positive adjusted EBITDA until 2028 and positive free cash flow until 2029.