Shares of Virgin Galactic (SPCE) are trading lower on Tuesday after the company reported weaker than expected quarterly results and said its next spaceflight test could be delayed further due to an unexpected possible maintenance issue with carrier aircraft VMS Eve. Following the news, both Credit Suisse and Susquehanna lowered their price targets on the shares.
RESULTS, MAINTENANCE ISSUE: Virgin Galactic reported first quarter losses per share of (55c) and revenue of 0c, with consensus at (27c) and $330K, respectively.
During the company’s earnings call, Michael Patrick Moses, President of Space Missions & Safety, explained that, "as part of our readiness program for the next spaceflight, we also conducted three flights with our mothership, VMS Eve, over the past two weeks from Spaceport America in New Mexico. Per our standard protocols, we perform a meticulous post-flight inspection after each flight to identify, among other things, any maintenance that we may need to perform on the aircraft. Following Eve's last post-flight inspection, we tagged a potential wear and tear issue as requiring further evaluation and analysis to see if any additional action is necessary. […] Our next maintenance cycle is planned for later this fall. And prior to Eve's last flight, all inspections confirmed our schedule was on track. However, following this last inspection, we identified an item on our maintenance calendar that needs further study to determine whether we need to take action now instead of the fall as planned. Because this issue just emerged at the end of last week, we are still determining what steps may be necessary to address it. While this may impact our flight test schedule, I want to emphasize that this is the nature of a test flight program and we are going to take the time we need before moving forward."
"Our Spaceship Unity is currently in preflight procedures following the successful resolution of the EMI challenge. Unity requires our mothership to carry it on the first stage of our spaceflight. And with this late-breaking maintenance evaluation, we will report back to the market next week with an update on schedule implications to our next flight," Michael Colglazier, CEO and President, added.
TARGET CUTS: Following the news, Credit Suisse analyst Robert Spingarn lowered the firm's price target on Virgin Galactic to $33 from $42, but kept an Outperform rating on the shares. The analyst noted Virgin Galactic reported first quarter free cash flow of ($50M) and said it is also re-evaluating the timing of its first powered test flight, which had been delayed from February to May. After resolving previously-discovered EMI issues, Virgin Galactic discovered fatigue issues with VMS Eve that may require an acceleration of maintenance that was originally planned for October, Spingarn added, noting that Virgin Galactic is completing an analysis of the fatigue data and expects to make a decision on the maintenance timing and any associated change to the test flight schedule next week.
Keeping a Neutral rating on the shares, Susquehanna analyst Charles Minervino also lowered his price target on Virgin Galactic to $20 from $34. The analyst lowered his estimates to reflect an adjustment to his R&D forecast and a reduction to the total number of commercial flights he is forecasting for 2022.
PRICE ACTION: In Tuesday afternoon trading, shares of Virgin Galactic have dropped over 2% to $17.56.
Virgin Galactic
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