Investors in space tourism pioneer
Virgin Galactic Holdings
got a shock of cold water in the face on Wednesday.
BofA Securities analyst Ronald Epstein cut his price target for Virgin Galactic shares (ticker: SPCE) to $10 from $20. It’s a big cut. Curiously, investors don’t seem all that concerned. The muted reaction says a lot about Wall Street ratings, price targets, and stock trading.
Virgin Galactic shares actually opened higher on Wednesday and then followed the broader market down. The stock is down 1.7%, at $9.22, in midday trading. The
is up 0.2%. The
Dow Jones Industrial Average
are both up about 0.3%.
One reason shares might not be down more is because they have already been hammered. Galactic stock closed on Tuesday at $9.37, down 85% from an all-time high of almost $63 set back in February 2020.
Investors’ appetite for more-speculative stocks has waned since then. The
Russell 2000 Growth index,
for instance, is down about 23% since February. But delays in the start of commercial operations have also created a problem for Galactic stock. Late in 2021, the company pushed back the start of commercial space tourism flights to the end of 2022. It needed to do more work on its spaceships.
Ratings changes also tend to be bigger deals than price target changes—even big price target changes. Epstein’s Galactic stock rating didn’t change Wednesday. He still rates shares the equivalent of Sell.
Epstein’s new target price is, essentially, marking to market. Epstein still has his concerns about the company’s outlook. It wouldn’t make sense to keep his target price more than 100% higher than current trading levels. Potential gains like that might mean he should be recommending the stock to his clients.
Typically, analyst price targets are about 10% to 30% above recent trading levels. Epstein’s new price target for Galactic stock is about 10% above where shares are trading.
That’s at the lower end of upside for any small stock, but the average rating on a stock is a Buy and not a Sell, as Epstein has on Galactic shares. More analysts typically rate shares Buy than Hold or Sell. With small-capitalization stocks, like Virgin Galactic, the average Buy-rating ratio among Street analysts is about 65%. The average Buy-rating ratio for Galactic stock these days is 33%.
Only four out of 12 analysts covering Galactic stock rate shares Buy. Wall Street sentiment remains low.
Write to Al Root at firstname.lastname@example.org