Virgin Galactic Plans to Sell $500M in Stock; Shares Fall 17%

Virgin Galactic Holdings (SPCE) is looking to sell up to $500 million worth of common stock. The company has engaged the services of Credit Suisse Securities (CS), Morgan Stanley (MS), and Goldman Sachs (GS) as part of a capital raising drive. The three will act as the company’s agents in the sale. SPCE stock price plunged 17.30% to close at $40.69 yesterday.

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The agents are entitled to commission at a mutually agreed rate that will not exceed 2% of the gross sales price. (See Virgin Galactic stock charts on TipRanks)

Virgin Galactic Holdings intends to use net proceeds from the offering for working capital, general, and administrative purposes. Part of the funds will also go towards financing the development of the company’s spaceship fleet, among other infrastructure developments.

Yesterday, BofA Securities analyst Ronald Epstein reiterated a Sell rating on the stock with a $41 price target. This implies that shares are fully priced at current levels. The sell rating comes just after the company moved a step closer to start carrying paying commercial passengers into space.

While Virgin Galactic has not announced when it intends to begin the commercial service, the analyst expects the program to begin in the first half of next year as the company hopes to complete another two suborbital test flights by fall 2021.

Epstein stated, “We see the risk reward as more skewed to the downside given our probability weighted base, bull and bear cases. Further, we believe the current valuation more than reflects the underlying financial fundamentals and gives the company a more than healthy multiple premium for potential growth.”

Consensus among analysts is a Moderate Buy based on 4 Buys, 6 Holds, and 1 Sell. The average Virgin Galactic price target of $36.90 implies 9.31% downside potential to current levels.

SPCE scores a 7 out of 10 on TipRanks’ Smart Score rating system, suggesting that the stock is likely to perform in line with market averages.