According to one analyst, Space Exploration Technologies‘ (NASDAQ:SPXC) share price could hit $800 within the next 12 months.
To get there, Raymond James reckons the success of SpaceX’s Starship, the world’s largest and most powerful spaceship, is fundamental. Its 14th test flight is due to take off on 22 September, as it attempts to reach orbit for the first time. If successful, does this mean $800 is now on the cards? Let’s see.
Why’s Starship crucial?
For SpaceX to achieve this most optimistic of price targets, the importance of successfully commercialising Starship cannot be underestimated.
In its model, James assumes the rocket will bring down the cost of getting cargo into space by 99%. It also assumes that the group will be able to regularly launch the satellites that it needs to expand the coverage of Starlink, its internet service, and deploy the ‘floating’ AI data centres envisioned by Elon Musk.
The $800 price target is based on 2031 forecast revenue of $837bn and EBITDA (earnings before interest, tax, depreciation, and amortisation) of $696bn. By comparison, the equivalent figures for the year to 30 June were $23bn and $8.3bn respectively. In terms of revenue alone, that’s a 36-fold increase.
However, at the moment, the only part of SpaceX that’s profitable is its rapidly-growing Starlink division. Revenue for the three months ended 30 June soared 32% quarter-on-quarter. Operating income increased $468m (24%). But future growth will be restricted if it can’t get its satellites into space.
My view
Personally, a price target of $800 feels a bit rich to me, especially in the short-term. Indeed, its stock price could come under pressure over the coming months as various pre-IPO lock-in restrictions continue to unwind. So far, at least, it doesn’t appear as though many longstanding shareholders are cashing in.
But Wall Street remains upbeat. Of the 41 analysts covering the stock, 31 have issued a Buy recommendation, seven are Neutral, with just three advising their clients to Sell. However, their consensus target is $212, which is 73.5% below James’ number.
Looking ahead, there are other potential obstacles. Morgan Stanley estimates that SpaceX’s 2027-2034 capital expenditure requirement is going to be $84bn. Where’s this coming from?
And on 2 September, CNN published an article suggesting that investors may be overlooking a “major” risk. Namely, how would SpaceX fare if Musk walked away — or worse?
It noted there was an unquantifiable premium – the ‘Musk multiple‘ – that appears to apply to anything he’s involved with and his “still largely theoretical goals”. It noted that much of SpaceX’s market value would “evaporate” if Musk was unable to lead.
Final thoughts
Whatever your opinion of SpaceX, I’m sure we can agree that it’s going to be fascinating to see whether it can achieve some of the more sensible targets that it’s set itself.
I reckon there’s a tiny chance it will. That’s why I have it in my own portfolio. But in my opinion, the odds are stacked heavily against it, so I only have a small exposure. For those comfortable with the elevated risk, I think a minor position could be considered.
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James Beard owns shares in Space Exploration Technologies.
This story originally appeared on Motley Fool
