An Electron rocket launches the “Out and Back” mission from the company’s facilities in New Zealand on May 2, 2022.
Rocket Lab’s stock is ready to take off, according to Cowen.
On Wednesday, the company upgraded the company’s stock to outperform market performance and raised its price target to $8.00 from $6.50. The new target price is a 55% upside from where the shares are currently trading.
“We are upgrading RKLB to Outperform for key execution milestones, better competitive position and benefits from Russian sanctions,” analyst Cai von Rumohr wrote in a Wednesday note. These milestones support estimated revenue growth of 35% to 40% with profitability and positive free cash flow in 2024, they added.
Rocket Lab is the market leader in launches, with the best U.S. launch record after SpaceX, according to Cowen. Its proven success, low-cost reusable design, scale cost advantages, plan for product growth with the Neutron medium launch vehicle, and the fact that it uses its own launch pads are all advantages competitive.
“It’s also an end-to-end merchant provider of space systems,” von Rumohr said. “That makes it the most likely (after SpaceX) launch vendor to be financially successful.”
This year, Rocket Lab has had six successful launches and is on track to have its first US launch in Q4.
“It also successfully helicoptered a returning first stage, demonstrating its reusability; and it made three acquisitions to grow its Space Systems business,” according to the note. “On the other hand, the main competitor Astra has five failures, while larger players (Firefly, Relativity and ABL) have yet to successfully launch.”
While its competitors seemed financially stressed, Rocket Lab has $441 million in net cash, which should see it achieve cash flow positive in 2024.
Beneficiary of the sanction
The company will also benefit from Russian sanctions, as the bans impact competitors Soyuz and NOC Antares.
“The sanctions have relatively little impact on RKLB’s Electron, which is smaller than the affected vehicles, but will bolster demand for Neutron, which has roughly the same payload capacity as Soyuz and Antares,” wrote von Rumohr.
Overall, Rocket Lab’s long-term success is underpinned by its strong performance relative to its peers, strong customer relationships and loyalty, according to Cowen.
“While launch failures or customer/weather delays are a generic risk, we believe it is plausible that Electron will grow to 23-26 launches by 2025 and Neutron will reach 2-3 launches by 2025,” von Rumohr said.
The business also sees the company post strong third quarter results in September.