Space stocks attract investors for two principal reasons: space tourism and space exploration. Because space tourism is so young, the market size is hard to peg, but Grand View Research is forecasting a 45% CAGR from 2024 to 2030, eventually leading to a $10 billion valuation. The benefits of space exploration are similarly hard to measure. However, the resources in the asteroid belt between Mars and Jupiter alone are worth an estimated $700 quintillion.
I take all of these estimates with a grain of salt, but one thing is certain: Space is uncharted territory offering rich returns, with North America leading the market.
Virgin Galactic (SPCE)
After completing its 11th successful spaceflight — and its first in 2024 — Virgin Galactic (NYSE:SPCE) looked to lead space stocks this year. However, it’s in hot waters thanks to a Boeing (NYSE:BA) lawsuit, which could cause delays in the commencement of commercial Delta class spaceflights slated for 2026.
Boeing contends Virgin Galactic failed to fulfill contractual obligations and eliminate two sets of trade secrets after terminating their partnership to create a Mothership jet carrier. Boeing alleges Virgin continues to use these trade secrets to develop its new aircraft carrier, potentially exposing vital data to public disclosure. Virgin Galactic plans to fight back, but the stock is already pricing in the lawsuit, down 47% in 2024.
There’s no denying that the issue clouds Virgin Galactic’s 2026 targets. Following the completion of its Galactic 06 mission — which made headlines because all four seats on board VSS Unity were occupied by private astronauts — Virgin Galactic talked about increasing the number of flights it can conduct by building its next-generation Delta-class ships, scheduled to begin testing next year and go into commercial service in 2026.
A narrowing of its loss in the latest quarter built on its promise to generate positive free cash flow by 2026.
However, until a replacement mothership is created, Virgin Galactic’s growth will probably be hampered by the current constraints of its VMS Eve, which lost its alignment pin during its most recent space mission.
On the other hand, if matters between the two parties get settled out of court, Virgin could be back on track and make a run for its consensus target price of around $3, translating into 123% in potential upside. This combines to make SPCE one of the most high-risk, high-reward space stocks.
Intuitive Machines (LUNR)
As Virgin Galactic battles the Boeing lawsuit, Intuitive Machines (NASDAQ:LUNR) is seeing growth in its shares after securing a big NASA contract to aid in lunar exploration.
Intuitive Machines will help develop a Lunar Terrain Vehicle for upcoming moon missions. Intuitive Machines, acknowledged as a main contractor for NASA’s Artemis program, will receive a $30 million payment. Working with partners such as Boeing and Northrop Grumman, the deal has a potential value of up to $4.6 billion.
The most recent development intensifies the attraction of LUNR, which is already booming due to the private Odysseus lander’s moon landing — a first for the U.S. since 1972.
The moon landing enhanced Intuitive Machines’ remarkable first quarter. The company announced exceptional financial results for Q4 2023, comfortably exceeding projections. It reported earnings per share of 33 cents, a noteworthy 120% increase from the previous year, while Q4 revenues of $30.6 million exceeded estimates by $8.4 million.
However, tempering this excitement in Q1 was announcing a $300 million stock offering. The markets, though, are in a forgiving mood, exemplified with a year-to-date return of 141%. Strong execution thus far has investors trusting that the money will go towards enhancing space crafts, building on an already impressive cash balance of roughly $55 million on March 1. Despite the sharp increase, analysts still forecast a 115% upside for LUNR.
Northrop Grumman (NOC)
Suppose you want to invest in space stocks but dislike the volatility of Virgin Galactic and Intuitive Machines. In that case, Northrop Grumman (NYSE:NOC), with 21 consecutive years of dividend hikes, certainly grabs attention.
Northrop collaborates with NASA to create spacecraft and orbit stations for lunar exploration. In particular, the multinational defense and aerospace company is notably working on NASA’s lunar Gateway, an important lynchpin of the NASA-led Artemis missions to go back to the Moon and map a route for the first human flights to Mars.
Northrop is not a stranger to government work, which gives it access to smooth, recurring free cash flow. Notable examples include its work with the U.S. Army’s Precision Strike Missile System and the development and testing of Hypersonic Air-Breathing Weapon Concept (HAWC) vehicles, which it carried out under a Defense Advanced Research Projects Agency (DARPA) contract in collaboration with Raytheon Technologies (NYSE:RTX).
Northrop is also cashing in on the AI wave through its partnership with EpiSci to create and implement autonomous tactical solutions.
Finally, Northrop will continue to benefit from the rise in military budgets in the U.S. and Europe. NATO data shows the bloc’s European arm is back to spending 2% of its GDP in 2024. The cash stockpile from this segment will help pacify investor concerns regarding potential losses in the space division, which is still nascent.
The stock holds a 5% upside based on a $480 price target.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
