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Rocket Lab could surge 55% as leader in the launch market, Cowen says

An Electron rocket launches the “There And Back Again” mission from the company’s facility in New Zealand on May 2, 2022.

RocketLab

Rocket Lab stock is ready for takeoff, according to Cowen.

The firm on Wednesday upgraded shares of the company to outperform from market perform and raised its price target to $8.00 from $6.50. The new target price is a 55% upside to where shares currently trade.

“We’re upgrading RKLB to Outperform for key execution milestones, an improved competitive position, and benefits from Russian sanctions,” analyst Cai von Rumohr wrote in a Wednesday note. These milestones support an estimated 35% to 40% revenue growth with profitability and positive free cash flow in 2024, they added.

Launch leader

Rocket Lab is the leader in the launch market, with the best US launch record after SpaceX, according to Cowen. Its demonstrated success, low-cost reusable design, scale-cost advantages, product growth plan with medium-launch vehicle Neutron and that it uses its own launch pads are all competitive advantages.

“It’s also an end-to-end merchant supplier of space systems,” von Rumohr said. “These make it the launch provider (after SpaceX) most likely to achieve financial success.”

This year, Rocket Lab has had six successful launches and is on course to have its first US launch in the fourth quarter.

“It’s also achieved helicopter catch of a returning first stage, demonstrating reusability; and it’s made three acquisitions to expand its Space Systems business,” according to the note. “In contrast, key competitor Astra has five failures, while larger players (Firefly, Relativity, and ABL) have yet to achieve a successful launch.”

While its competitors looked financially stressed, Rocket Lab has $441 million in net cash, which should get it to positive cash flow in 2024.

Sanction beneficiary

The company will also benefit from Russian sanctions, as the bans impact competitors Soyuz and NOC’s Antares.

“The sanctions have relatively little impact on RKLB’s Electron, which is smaller than the impacted vehicles, but they will bolster demand for Neutron, which has roughly the same payload capacity as Soyuz and Antares,” von Rumohr wrote.

Overall, Rocket Lab’s long-term success is supported by its strong performance versus its peers, solid client relationships and repeat business, according to Cowen.

“While launch failure(s) or customer/weather delays are a generic risk, we think it’s plausible that Electron ramps to 23-26 launches by 2025 and Neutron reaches 2-3 launches by 2025,” said von Rumohr.

The firm also sees the company reporting solid third-quarter results in September.

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