Prospects for companies in the space industry – Finam.Ru

Space is getting closer. After the July suborbital flights of billionaires Richard Branson (July 11), founder of the space company Virgin Galactic, and Jeff Bezos (July 20), founder of the space company Blue Origin, private tourist flights to space have finally become a reality. So far, they are still only available to the super rich, but some tourists are already dreaming of how they will one day go into space.

Finam.Ru talks about earthly problems of space exploration, as well as about the prospects for companies in this industry.





Blue Origin VS SpaceX and NASA

Despite the recent rise of the space tourism industry, the main competitors, the private companies of the world’s richest people Jeff Bezos and Elon Musk, Blue Origin and SpaceX, have already launched a legal battle over space.

In April 2021, the US National Aeronautics and Space Administration (NASA), as a result of a competition to create a project to land a man on the moon in 2024, chose Musk’s SpaceX company to create a special lander that will take astronauts to the moon surface. This NASA contract is worth $2.9 billion.

On Tuesday, August 17, it became known that Bezos’ company Blue Origin filed a lawsuit against NASA, saying that this business has significant problems. Blue Origin representatives believe that 2 suppliers are needed to develop a lunar lander. NASA responded that the budget does not allow them to enter into a contract with 2 companies.

Get the Space ETF and Virgin Galactic

Many experts agree that investing in space companies at the beginning of suborbital tourism can be risky.

Alexey Kornilov, a leading analyst of international markets at Otkritie Broker, expert at Otkritie Research, believes that those who want to invest in the space industry should choose ETFs rather than individual companies due to the high risks for investors.

“Procure Space ETF (UFO) reflects the behavior of the S-Network Space Index. The ETF includes about 30 space-related companies, such as Virgin Galactic (SPCE), Boeing (BA), Iridium Communications (IRDM). This reduces the inherent risks of individual companies and more fully reflects the behavior of the industry,” says the analyst.

Natalya Pyrieva, analyst at FG FINAM, notes that it is too early to talk about mass space tourism in the foreseeable future. So far, suborbital travel is only available to the super rich – at Virgin Galactic, a space trip costs $450,000 per tourist. At the same time, the company is unprofitable. According to Bloomberg forecasts, Virgin Galactic will have a loss of $331 million in 2021. The company is expected to reach a profit of $40 million only in 2024.

“We should expect increased volatility from the company’s shares, but it is quite difficult to determine the direction, because every trace of information will put pressure on investors and on the company’s prices. From a technical point of view, on the weekly chart, Virgin Galactic shares are close to the support level that is around $23, while slow stochastic lines are approaching the oversold zone, and therefore the potential for the index to decline in the short term may be exhausted. In the event of a deepening correction, the $15 level will act as support. The targets are $33 and $56, ” believes the expert.

lockheed martin

Companies that produce aviation equipment do better.

The American Lockheed Martin is a defense company that specializes in aircraft, weapons, aviation and the shipbuilding industry.

Ivan Avseyko, analyst at Otkritie Broker on the international market, notes that 60% of the company’s revenue comes from orders from the US Department of Defense, 20% from US government agencies and another 20% from defense structures in other countries.

Additional attention is being paid by investors to the space systems segment (about 20% of revenue) of Lockheed Martin, which is expected to face competition from SpaceX’s reusable launch program and Blue Origin. This applies primarily to the United Launch Alliance project (a joint venture between Lockheed Martin and Boeing, which is responsible for low-Earth orbit spacecraft launch services for the US government). Avseiko points out that the majority of revenue in this segment comes from satellite systems and services to provide secure military communications and surveillance for the Ministry of Defense.

Natalya Pyreva emphasizes that in the second quarter of 2021, Lockheed Martin’s profit increased by 11.6% compared to last year and amounted to 1.82 billion dollars.

“Since the beginning of this year, the company’s paper has risen in price by 8%, and we maintain our buy recommendation on them. The target price for the end of 2021 is $450.3, which represents 22% upside potential from current levels.”, says Pyrieva.

Boeing

Boeing is the world’s leading airline and manufacturer of Boeing passenger aircraft.

The company’s net income in the second quarter of 2021 was $567 million, or $1 per share. Meanwhile, a year ago, the company posted a net loss of $2.4 billion, or $4.2 per share, in the second quarter. Boeing’s second-quarter revenue rose 44% year-over-year to $17 billion. The company’s financial results improved significantly compared to the previous year, thanks in large part to progress in returning 737 MAX jets to service worldwide.

Boeing Defense, Space & Security revenue rose 4% year over year to $6.88 billion, beating market expectations of $6.78 billion.

“Since the beginning of the year, the company’s paper has risen in price by 7%, and we maintain our ‘Hold’ recommendation for them. Our target price for the end of 2022 is $250, which means an upside potential of 10% from the current price level,” says Natalya Pyrieva.

Vadim Merkulov, head of the analytical department of Freedom Finance, notes that Boeing’s revenue from the space industry is less than 8%.

“The company’s main products are satellites that provide navigation and communication solutions, as well as drones, and launch vehicles have not yet shown any major achievements, such as SpaceX. Despite this, there is a buy recommendation with a target price of $ 295. However, growth is driven by aviation and military business The approvals to operate the 737 MAX, which has been obtained from US (FAA), European (EASA) and Canadian (TC) regulatory authorities, already allows to increase sales. -9 months) Civil Aviation Administration of China will join them, which will open up a large domestic market for China for a promising version of the aircraft. The main risks are a weak recovery of the number of flights to pre-pandemic levels and a decrease in order intake from the US Department of Defense,” says the expert.

Honeywell

The American company Honeywell manufactures aviation equipment and electronic control and automation systems.

Vadim Merkulov, head of the analytical department of Freedom Finance, emphasizes that Honeywell has diversified revenues in the space industry: microcircuits, controllers, displays, as well as satellites, navigation and communication systems. At the same time, the space segment’s share is less than 17.5% of the company’s revenue.

“There is no direct competition with new players such as SpaceX, Blue Origin and Virgin Galactic, but competition remains with old companies – Boeing, Lockheed Martin and Raytheon Technologies. But diversification and a large number of contracts from NASA is a strong competitive advantage The company reported well on the latest quarterly report at the end of July with a forecast at the consensus level As a result of the absence of a large discount factor, such as Boeing (737 MAX), the company has lower potential – a target price of $ 252. conservative investors with a moderate dividend in the area of ​​2% “, says Merkulov.

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