Rocket Lab Stumbles on Neutron Setback — And I'm Not Scared

Long-time "Stocks Under $10" name and core Sarge-folio holding Rocket Lab USA  (RKLB)  released its fiscal fourth-quarter financial results on Thursday evening. The stock is trading 9% lower early Friday morning as I write this piece. The quarter performance and guidance provided have almost nothing to do with this overnight selloff. There was another issue.

Rocket Lab, on Thursday, announced another delay in the debut for its medium-lift rocket, known as "Neutron," now to the fourth quarter of 2026. This rocket is considered to be a legitimate competitor to SpaceX's Falcon 9 and had been expected to debut in 2025.

The initial attempt at a maiden voyage was aborted last year in order to prevent a catastrophic event, according to CEO Peter Beck, due to a tank hydrostatic test failure, which was attributed to manufacturing defect. The associated investor disappointment in a stock that is up roughly 212% over 12 months is being reflected in some overt profit-taking.

The Quarter

For the period ended December 31, Rocket Lab posted a GAAP loss per share of $0.09 on revenue of $179.652 million. These top-line and bottom-line results both beat Wall Street's expectations while that revenue print was good enough for year-over-year growth of 35.8%. 

During the quarter, Rocket Lab had been awarded an $816 million prime contract by the Space Development Agency to design and build a constellation of 18 advanced missile warning, tracking, and defense spacecraft, the company's most lucrative contract to date.

Additionally, during the quarter, twin spacecraft designed, built, and operated by Rocket Lab were successfully launched for NASA’s ESCAPADE mission to Mars, and it was selected by the Missile Defense Agency for the Scalable Homeland Innovative Enterprise Layered Defense (SHIELD) program. 

Rocket Lab also launched three missions for HASTE (Hypersonic Accelerator Suborbital Test Electron) delivering hypersonic suborbital test launch capability, for the Department of War in support of the "Golden Dome" initiative.

Operations

As revenue grew 35.8% to $179.652 million, the cost of that revenue increased 16.6% to $111.42 million. This left a gross profit of $68.232 million (+85.3%). Once adjusted, gross profit landed at $79.583 million, good for adjusted gross margin of 44.3%, up sharply from 34%.

Total operating expenses grew 35% to $119.274 million. This left an operating loss of $51.042 million, a slight improvement over the year-ago comp. After adjustments, operating loss printed at $24.905 million, narrowing from a loss of $29.467 million.

After accounting for interest, other income & expenses and taxes, the net loss dropped slightly to $52.922 million. That worked out to a GAAP loss of $0.09 per share, a once cent improvement over the same period one year ago.

Guidance

For the current quarter, Rocket Lab sees revenue of $185 million to $200 million. At the midpoint, that's markedly better than the $181 million that Wall Street was looking for and would be good for annual growth of 57%. 

The company sees an adjusted gross margin of 39% to 41% and adjusted EBITDA of roughly -$27 million to -$21 million. 

Overall, this guidance is being viewed positively.

Fundamentals

For the full year completed, Rocket Lab generated operating cash flow of -$165.521 million. The company also spent $156.285 million on capital expenditures, thanks to the Neutron program, leaving free cash flow at -$321.806 million. Obviously, it is not yet in a position to return capital to shareholders.

Turning to the balance sheet, Rocket Lab ended the period with a cash position of $1.017 billion and inventories of $158.407 million. This left current assets at $1.366 billion. Current liabilities stand at $334.476 million, which includes no short-term debt. That puts its current and quick ratios at an extremely muscular 4.08 and 3.61, respectively.

Total assets amount to $2.324 billion of which $430.496 million is labeled as either goodwill or intangible. At 18.5% of total assets, this is not an issue. The company does have another $82.247 million in investments labeled as long-term that could potentially be added to the cash position. 

Total liabilities less equity comes to $602.624 million. This does include $152.395 million in senior convertible notes that could ultimately dilute the equity to some degree. 

This is a very strong balance sheet, especially for a company that is not yet profitable.

Wall Street

Overnight, three sell-side analysts, all rated at five stars by TipRanks, were positive on the stock. 

Ronald Epstein of Bank of America reiterated his "buy" rating and his $120 price target. Additionally, both Erik Rasmussen of Stifel Nicolaus and Sujeeva De Silva of Roth MKM reiterated "buys" while increasing their targets to $90 each.

My Opinion

It's no secret that I am high on this stock. It has been very good to me and very good to my followers. Therefore, there is a chance that I will be unintentionally biased. 

I see the Neutron setback as a real problem, but one that CEO Peter Beck will overcome. I think the currently running Electron program will keep the company humming and that the government work will continue to increase. 

Cash flows are negative. That's not going to change, but the balance sheet is in excellent shape and debt is certainly not a problem. I see weakness in this stock as opportunity. 

​The stock is not out of the woods regarding the head-and-shoulders pattern that we have been warning about. ​Relative Strength has improved to the point of reaching a neutral reading, but that will soften Friday morning. Same with the stock's daily MACD (moving average convergence divergence). 

I am largely reiterating my stance as it was going into Thursday night's event.

Rocket Lab (Post-Earnings)

Price Target: $94 (reiteration)

Pivot: $76 (50-day SMA) 

Add: Down to $64 (February low)

Panic: Loss of 200-day SMA ($53)

At the time of publication, Guilfoyle was long RKLB equity.