Canaccord Genuity begins coverage of Virgin Orbit Corp with ‘Buy’ rating and $20 price target

Virgin Orbit is one of only three commercial launch operators to have flown multiple orbital missions back-to-back – three to date

Canaccord Genuity (TSX:CF, LSE:CF) initiated a hedge on Virgin Orbit Holdings Inc with a “Buy” rating and a price target of $20.

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 launch its rocket into the air, requires no static launch pad and can take off from anywhere on Earth without being subject to regular weather delays, radar range or civil airspace regulations.

Canaccord analysts said the ability to launch reactively with only weeks or days notice made Virgin’s LauncherOne rocket particularly attractive to government customers. LauncherOne is also marketed to the Pentagon as a hypersonic missile interceptor, testbed, and missile target, opening LauncherOne sales up to the DoD’s vast $11 billion missile defense and hypersonic budgets of 3 .8 billion dollars.

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They noted that Virgin Orbit is one of only three commercial launch operators to have flown multiple consecutive orbital missions – three to date – and being in the same exclusive club as Rocket Lab (RKLB) and SpaceX has allowed the company to take an aggressive share in the small launch market, which primarily serves the fast-growing satellite services ecosystem that is developing in low Earth orbit (LEO).

Analysts pointed out that orbital launch activity increased by 30% in 2021 to 146 launches, while in 2020 the number of small satellites put into orbit increased by 209% year-on-year to 1,202.

They estimate that Virgin Orbit has a substantial and rapidly growing TAM opportunity based on a forecast of more than 4,900 small satellites with a mass of less than 600 kg (which can be carried by LauncherOne as a payload) traveling in orbit in 2030.

The analysts said: “We believe that the Pentagon’s arms race with Russia and China to deploy hypersonic weapons presents 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 supply by the US military for use as a hypersonic target to test missile defenses or as an air-launched missile interceptor.”

Very handy and affordable

LauncherOne is also highly maneuverable and able to withstand substantial loads and other aerodynamic forces thanks to its air-launching design at a very high angle of attack and its ability to stroke its engine at wide angles, they added. .

“With a price tag of just $12 million per rocket, LauncherOne is also a particularly affordable hypersonic vehicle compared to systems built by defense bounties,” the analysts pointed out.

They noted that Virgin Orbit is also working to leverage its established launch capability to enter the satellite remote sensing services market and that the company has taken stakes in companies such as SatRevolution, HyperSat and Horizon Technologies as that it seeks to build an “ecosystem” of space-based sensors that can enable a combined “sensor fusion” offering to potential data customers, including electro-optical, hyperspectral, SIGINT and IoT.

Virgin has also partnered with BigBear.ai to combine remote sensing data collected by its constellation of satellites with artificial intelligence software to extract high-quality insights for customers, the analysts added.

They said their $20 price target is calculated using a multiple of 7.1x EV/income, applied to their 2024 estimates.

The analysts concluded: “We believe that Virgin Orbit’s pairing of a small launch vehicle (which incorporates reusability) with an air launch mothership should enable the company to scale faster and deliver faster launch services compared to its peers.

“Furthermore, the opportunity for LauncherOne as an available hypersonic defense platform is exceptional, allowing the company to disrupt this new domain of cutting-edge warfare. As the company faces established competition in the field of satellite operators, Virgin Orbit’s ability to provide its own launch services with minimal delays allows it to deploy a constellation quickly compared to competing satellite service companies.”

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