Image courtesy of 123rf.com

Since the premarket trade on Friday, Rocket Lab (Nasdaq: RKLB) stock is now up 25%. In a classic buy-the-news move, investors reacted to the young aerospace company landing a $515 million contract with USG. Rocket Lab will design, manufacture, and operate 18 spacecraft up to 2033.

The first round of satellite launches is scheduled for 2027. Out of the contract’s $515 million, $26 million is allocated to options and incentives. The one-day RKLB appreciation shows demand for publicly traded aerospace companies without Elon Musk’s privately held SpaceX.

With a show of confidence from USG, will Rocket Lab transition from a penny stock in 2024?

What Does Rocket Lab Exposure Entail?

Year-to-date, RKLB shares have been highly volatile, delivering 42% performance with the latest boost. This is typical of penny stocks under $5 per share. After all, with a market cap of $2.7 billion, it takes much less capital for RKLB’s share price to move in either direction. 

Currently priced at $5.50, RKLB is borderline transitioning out of its penny stock phase. Rocket Lab is an end-to-end space company with two revenue divisions: Launch Services and Space Systems. As of the latest Q3 financial statement, Rocket Lab’s Launch Services generated $63.4 million in revenue, while Space Systems generated $121.1 million.

Each turned $10 million and $25.8 million gross profit, respectively, representing a 157% increase for Launch Services compared to a year-ago quarter vs an 18.4% decrease in Space Systems gross profit. These figures reveal that Rocket Lab is vulnerable to launch contracts.

At the same time, the decline in Space Systems’ gross profit (nine months ended September 30), which materializes launch contracts through design and manufacturing, shows the sector’s capital-intensive nature. 

Rocket Lab’s Launch Cost-Effectiveness as Main Attraction

Rocket Lab relies on the payload cost-effectiveness of its small Electron rocket to deliver miniature satellites into orbit. This could be a ride-share basis or a dedicated mission.

As previously explored in October when RKLB was holding at $4.50 per share, Electron’s payload capacity of 300kg places it at the higher end of cost-effectiveness compared to SpaceX’s Falcon 9 or Falcon Heavy. 

On the other hand, the smaller Electron footprint means that the launch itself is significantly cheaper, at $5 million, compared to SpaceX’s $67 million per launch. This is the space in which Rocket Lab finds clients. Their confidence is further bolstered by Rocket Lab’s 90% success rate in satellite deployment. Although still lower than SpaceX, with a 99.3% success rate, it shows encroaching parity with the best.

Rocket Lab’s Neutron Rollout as Key Stock Move Forward

To become more competitive, Rocket Lab plans to transition from small Electron to medium-sized Neutron rockets able to carry up to 15,000 kg for maximum payload or 13,000 kg for low earth orbit (LEO) with booster landing downrange.

This is closer to Falcon 9’s payload capacity of up to 22,800 kg for LEO deployments, somewhat cheaper at a $50 million targeted price per launch. In other words, Rocket Lab’s reusable Neutron rollout will be the next RKLB price move milestone, which is still aiming for 2024. Whether that price move is up or down will depend on the first Neutron launch.

“We’re still working towards getting something on the pad by 2024.”

Peter Beck, Rocket Lab CEO in August 2023 earnings call

Beck acquired the Virgin Orbit facility in California with a $16.1 million bankruptcy bid in May and noted this acquisition as a key milestone in scaling up future production of Neutron rockets.

To that end, Rocket Lab already secured two launch sites. One is in Mahia, New Zealand, and one is in Virginia, USA. This gives the company flexibility for a variety of missions and ranges. In particular, using the Virginia site at Wallops Island is conducive to landing contracts due to “close proximity to key government customers.”

Considering these factors, ten analyst inputs pulled by Nasdaq place RKLB as a “strong buy.” The average RKLB price target is $7.71 vs the current $5.52. The high estimate is $10, while the low forecast is $5.25 per share.

More By This Author:

Gold Prices Up 1% After US PCE Data Softer than Expected
Premarket Moves: Nike Dips 11%, Karuna Therapeutics Soars 48%
Rocket Lab Stock Up 17.3% After $515M Agreement with US Gov