Shares of Rocket Lab aren’t quite ready for takeoff just yet, according to Credit Suisse. Analyst Scott Deuschle initiated coverage of the space stock with an underperform rating. He cited several risks to the company’s current valuation in a note to clients Tuesday and highlighted a challenging growth trajectory for the industry across the board. “As discussed elsewhere in this report, we are concerned that the space economy may experience unfavorable reflexivity from declining public and private space company valuations,” he said. “Specifically for RKLB, lower valuations may drive a reduction in capital spend from earth intelligence firms and the broader space startup ecosystem.” Along with Rocket Lab, Deuschle initiated shares of Virgin Orbit with an underperform rating, noting both companies could suffer from challenging gross margins. He put a neutral rating on Spire Global and outperform ratings on both Blacksky Technology and Mynaric. “The space industry is one that largely consists of capital-intensive companies operating in a competitive arena with challenged unit economics, high technical and operational risks, unsupportive base rates, and a resistance toward consolidation,” Deuschle wrote. “It is an industry in which the only businesses that have shown a consistent ability to earn a ROIC greater than their cost of capital are pure-play defense contractors and niche component suppliers.” Deuschle noted that Rocket Lab’s Neutron development — while a competitive offering — carries a slew of financial risks and cited concerns about the product’s cost competitiveness compared to SpaceX’s Starship. Space stocks across the board have already suffered from diminished valuations in recent months, which Deuschle expects to continue. This drawback may prove particularly detrimental to Rocket Lab and drive a downdraft in capital spending among earth intelligence firms, he said. “As the capex for these companies represents a sizable portion of RKLB’s launch opportunity, a decline in that capex spend represents a one-for-one reduction in RKLB’s addressable market,” Deuschle said. Shares of Rocket Lab have slumped about 66% this year. Deuschle’s $3 price target suggests another 28% downside to the stock from Tuesday’s close. — CNBC’s Michael Bloom contributed reporting
