NEW YORK: Wall Street’s biggest banks shopped SpaceX shares for US$135 a pop during its record initial public offering (IPO).
Just weeks later, sell-side analysts from many of those same banks are telling clients those shares should be worth US$236 each on average.
More than a dozen brokers, including Morgan Stanley, JPMorgan Chase & Co and Goldman Sachs Group Inc started coverage with “buy-equivalent” ratings, according to data compiled by Bloomberg.
The new grades came after the end of the traditional “quiet period” for analysts from banks that helped underwrite its initial offering.
The SpaceX initiations are “pretty much as expected with Wall Street having a bullish bias”, according to Joe Gilbert, portfolio manager at Integrity Asset Management.
The stock “is a long-dated option on Musk’s vision, so investors should be cautious about expecting significant returns early as those may have been harvested by the early private investors,” he added.
Analysts are leaning into the long-term growth prospects for SpaceX, even as questions over its profitability, execution and valuation continue to linger after a blockbuster market debut.
Raymond James is the most bullish of the cohort, initiating with a strong “buy” recommendation and a Street-high price target of US$800, nearly 500% above its IPO price.
“Just as railroads, electric grids, and the Internet reshaped prior economic eras, we believe SpaceX is building the foundational platform for the next generation of industrial capacity,” Raymond James analyst Brian Gesuale wrote in a note.
Analysts are calling for the stock to jump 58% from Tuesday’s close of US$149.47.
The average price target for the 10 largest stocks on the Nasdaq 100 showed 28% upside, according to Bloomberg News calculations.
SpaceX shares closed down 6.8% on Tuesday and are now more than 25% below their June 16 closing high of US$201.80.
Morgan Stanley, among the biggest bulls with a US$300 price target, said the company stands to gain from demand for artificial intelligence (AI) services driven by fast-growing, new industry entrants.
“While neocloud deals are the bulk of the business near term, we see end-to-end AI services as the longer-term business model,” Morgan Stanley analysts, including Adam Jonas, wrote in a note.
The fresh wave of analyst reports give investors a framework for valuing SpaceX as more than a Musk-driven moonshot.
However, sell-side analysts tend to be quite bullish on stocks, with the largest names enjoying some of the most positive ratings.
Across the 3,000 biggest US companies, “buy” recommendations account for 63% of all analyst ratings, according to data compiled by Bloomberg. Only 4.2% of ratings are sells, the data showed.
Analysts are looking past the company’s current losses as they outline growth potential and an ever-expanding total addressable market.
Bloomberg Intelligence analysts George Ferguson and Melissa Balzano noted that the company’s profit from its rocket launch business will take a back seat to AI and Starlink.
Musk’s Tesla Inc, which took years to become profitable, wasn’t greeted with nearly the same level of Wall Street optimism after its IPO. The stock had roughly as many “hold” ratings as “buy” ratings for much of its first year of trading.
It even saw “sell” recommendations surpass “buys” as recently as 2020.
The stock rallied anyway despite strong arguments regarding its valuation as well as the company’s execution and financial performance.
“The challenge with SpaceX is similar but with a lot more at stake,” said Mark Malek, chief investment officer at Siebert Financial. — Bloomberg
