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On Thursday, TD Cowen expressed a positive outlook on Rocket Lab USA (NASDAQ:RKLB) by raising its price target to $25.00, a significant increase from the previous $8.00, while maintaining a Buy rating on the stock. The firm highlighted the progress of Rocket Lab's Neutron rocket, which is on track to hit its mid-2025 first launch target and is bidding for National Security launches.
The company has secured orders for its third and fifth Neutron launches in 2026-27, demonstrating robust demand and pricing strength. Rocket Lab is reserving its second and fourth Neutron launches for a potential first revenue-generating customer, with the first launch designated as a non-revenue test.
Rocket Lab is planning one Neutron launch in 2025, three in 2026, and five in 2027. The analyst noted that delays in the launch schedule are common, but the Neutron's pricing, which is more than four times higher than the Electron rocket's $8 million-plus cost, is expected to contribute to a 50% or greater increase in launch revenue in 2026-27. With 12 Electron launches year-to-date, Rocket Lab is on course to achieve 15-17 launches in 2024, despite initially aiming for 22.
The company's gross margins have seen improvement for three consecutive quarters, even as average selling prices (ASPs) have decreased, thanks to enhanced productivity. With the hiring of new COO Frank Klein, a production expert from Daimler AG (ETR:MBGn), further improvements in productivity are anticipated. Rocket Lab has over 40 launches in its backlog and is projected to set its 2025 launch target between 22 and 25, with an estimated completion of around 20 launches. The ASPs for next year are expected to climb from 2024's projected $7.5 million to closer to the $8.2 million average seen in the backlog.
TD Cowen anticipates that, given the high fixed costs associated with launch pads, Rocket Lab will experience a significant increase in Electron gross margins in 2025-26 if the company ramps up launches as expected.
In other recent news, Rocket Lab, a prominent player in the space launch and systems industry, reported a substantial 55% year-on-year revenue growth in Q3 2024, totaling $105 million. The company's earnings call emphasized strategic advancements such as a growing backlog valued at $1.05 billion and significant progress in its Neutron rocket development. Rocket Lab's collaborations with U.S. defense and space agencies continue to bolster its market position, while personnel changes aim to enhance leadership in manufacturing and financial oversight.
Recent developments include twelve successful Electron missions, setting a new annual record, and a shift in Neutron rocket development from design to qualification testing. Strategic agreements have been secured with U.S. defense and space agencies, including the U.S. Space Force and NASA. Personnel updates include the addition of Frank Klein as COO and Ken Possenriede to the board.
Looking ahead, Rocket Lab anticipates Q4 revenue to be between $125 million and $135 million, with GAAP gross margins projected at 26% to 28%. However, the company expects an adjusted EBITDA loss for Q4 to range from $27 million to $29 million. The first Neutron rocket launch is targeted for mid-2025, with more launches planned subsequently.
InvestingPro Insights
Rocket Lab USA's recent performance and future prospects align well with several key metrics and insights from InvestingPro. The company's market capitalization stands at $9.41 billion, reflecting the market's optimistic view of its potential, particularly with the development of the Neutron rocket.
InvestingPro data shows that Rocket Lab's revenue growth has been impressive, with a 53.92% increase over the last twelve months as of Q3 2024. This strong growth trajectory supports TD Cowen's positive outlook and increased price target. Additionally, the quarterly revenue growth of 54.9% in Q3 2024 indicates accelerating momentum, which could be further boosted by the anticipated Neutron launches and increased Electron launch frequency.
Two relevant InvestingPro Tips highlight Rocket Lab's financial position and market performance:
1. Rocket Lab "holds more cash than debt on its balance sheet," which is crucial for a company investing heavily in new technology like the Neutron rocket.
2. The company has shown a "strong return over the last three months," with InvestingPro data revealing a remarkable 263.51% price total return over this period.
These insights complement the article's focus on Rocket Lab's growth potential and improving operational efficiency. For investors seeking a deeper understanding of Rocket Lab's prospects, InvestingPro offers 12 additional tips that could provide valuable context for investment decisions.
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