Investing.com -- Morgan Stanley (NYSE:MS) significantly reduced its price target for Virgin Galactic on Tuesday, reflecting a more pessimistic outlook on the company's future.
The investment bank slashed 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 approximately 2026.
According to Morgan Stanley, "the stock's YTD slide (down ~85%) reflects the realization that the business model / attractive economics are premised on delivering a new fleet on schedule 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 spaceship enters service, noted Morgan Stanley.
The bank highlights that SPCE's current strategy and fleet development face substantial hurdles.
The firm's analysts are skeptical about the company's ability to meet its ambitious goals for the Delta-class spaceships, which are central to its long-term revenue projections.
"Successful production of the first two Delta ships and their ability to sustain high frequency flights must first be proven to realize 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 steady flight cadence by late 2027.
The firm also points to recent stock performance as a red flag. Since the announcement of a reverse stock split on June 12, 2024, Virgin Galactic's stock has fallen approximately 58%, compared to a 4% gain in the S&P 500.
The stock is down about 85% year-to-date, which Morgan Stanley says raises questions about the viability of its business model in light of technological risks and extended timelines.
The bank's revised outlook incorporates greater conservatism in its forecasts, with the expectation that SPCE will not see positive adjusted EBITDA until 2028 and positive free cash flow until 2029.