The delay in Virgin Galactic’s commercial service is causing the rating to drop

Shares of Richard Branson’s Virgin Galactic fell on Monday after Truist Securities analyst Michale Ciarmoli lowered the rating for the aviation giant’s shares from a buyout to a retention rating. The company lowered its target price for Virgin Galactic from $ 24 to $ 8 per share.

Ticker Security Last To change Change%
SPCE VIRGIN GALACTIC HOLDINGS INC. 6.07 -0.73 -10.74%

The move came after Virgin Galactic announced on Thursday that it would postpone commercial services for its space flights from the fourth quarter of 2022 to the first quarter of 2023, citing “escalation of the supply chain and labor constraints.”

“The combination of supply chain delays, timetable risks, cancellation of joint flights in Q1 23, lack of operational catalysts and rising interest rates are driving our rationale for the downgrade,” Ciarmoli wrote in a note to clients on Monday. “We see that supply chain and manpower leaks potentially lead to additional slips in commercial operations and we believe that the return to escape may not materialize before Q2 23 or later. Rising interest rates are significantly burdening our [discounted cash flow] model given that most of our valuation is in our ultimate value assumption. “

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The company, which opened ticket sales for its commercial spaceflight to the public in February at a cost of $ 450,000 per seat, has secured approximately 800 future astronaut reservations. Virgin Galactic strives to reach 1,000 bookings by the start of commercial service.

Although commercial service has been delayed, Virgin Galactic is still expecting a return to space in the fourth quarter with a test flight of its VSS Unity spacecraft and motherboat VMS Eve after their current period of improvement. The improvements are designed to improve the construction and reliability of ships to allow for a higher frequency of flights in preparation for commercial service.

Virgin Galactic is delaying commercial services for its space flights from the fourth quarter of 2022 to the first quarter of 2023, citing “escalation of the supply chain and labor constraints.” (AP Photo / Andres Leighton) (AP Photo / Andres Leighton) / AP Newsroom)

His second ship, the VSS Imagine, is scheduled to make its debut test flight into space in the first quarter of 2023, and is expected to begin private service in the middle of the year after several revenue-generating test flights. Once commercial services begin, VSS Unity will fly once a month, while VSS Imagine will fly twice a month.

Meanwhile, the Virgin Galactic-class Delta fleet is expected to begin flights in 2025, and commercial services are expected in 2026. The new production facility, which will be capable of producing up to 6 Delta-class spacecraft a year, should be available in late 2023.

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Virgin Galactic reported a net loss of $ 93 million during the first quarter of 2022, compared to a loss of $ 130 million a year ago, with $ 310,000 in revenue. Looking ahead, the company expects free cash flow in the negative $ 80 million to $ 90 million.

Shares of Virgin Galactica fell more than 50% year-to-date.

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