Higher Target Price for Rocket Lab With Trump-Driven Breakout in Play
We're forced to boost our price target for the aerospace firm following some bullish price action.
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Has Rocket Lab USA RKLB broken out?
Maybe I should add the word "again" to that question. Not even two weeks ago, I wrote to readership that the Sarge fave and former "Stocks Under $10" portfolio core holding was showing some weakness, but that there was some positive news. The firm's "Electron" and "Neutron" rockets had gained broader acceptance by NASA and, in the case of the Neutron, was expected to be on-ramped to the U.S. government's National Security Space Launch (NSSL) Lane 1 program to participate in an IDIQ contract valued at $5.6 billion over five years.
In addition, another Sarge name, Kratos Defense & Security KTOS had selected Rocket Lab for a team testing hypersonic flights for the U.S. government. This team was awarded a five-year contract with a value of up to $1.45 billion to create an affordable flight test bed that would rapidly increase hypersonic flight test capacity. That had come just weeks after the Department of Defense had given Rocket Lab USA the nod for inclusion in such activities. I reiterated my $33 target price at that time.
Earnings
Rocket Lab USA is set to report on February 27. Wall Street is looking for an adjusted EPS of $-0.07 on revenue of $130.6 million. That would compare to $-0.8 for the year-ago period while reflecting year-over-year top-line growth of about 118%. This time around, the guidance will be watched more closely than ever as the aerospace environment is evolving rapidly and Rocket Lab USA is now in the thick of it.
The Chart
Readers will see that what had looked like a rising narrowing wedge just a week and a half ago, now looks more like a basing period of consolidation after the run-up for the stock this past November and December. The high point for that base was $30.26, which was exceeded on Tuesday as the stock apexed at $31.64.
So far this morning, some normal profit taking has taken place and Tuesday's 30% run has been followed by an almost 8% decline. The stock has also declined below the former high point of the base. Not the end of the world. Just not the breakout that I had hoped had occurred on Tuesday.
Could it still happen? With President Trump talking about going to Mars and the firm's participation in the development of the nation's hypersonic weapons, of course it could. That said, Tuesday's high has now become the top of the base and therefore our new pivot.
Supported by a more bullish-looking daily MACD and benefiting from a higher pivot point, we will now be forced to increase our target price despite the lack of a clear breakout, nor the taking out of our old target.
Target Price: $39 (up from $33)
Pivot Point: Top of the base ($31.64)
Add: Down to the 50-day SMA ($23.70)
Panic: Loss of the bottom of the base.
Note: What may already be the "highest on Wall Street" target for RKLB is now about $8 or 25% higher than the second highest that I am aware of.
At the time of publication, Guilfoyle was long RKLB and KTOS equity.
