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- SpaceX closed Tuesday at about $200, well above Morningstar's fair value estimate of $63.
- Shares have defied doubters and stayed strong since the company's historic IPO last week.
- A Morningstar aerospace and defense analyst details two things that could get him to raise his estimate.
Leading up to SpaceX's IPO last Friday, Morningstar analysts said the company's fair value was about 50% lower than its valuation.
After its first three trading days, which saw SpaceX soar 49% to $201.68 a share, that gap has grown to nearly 70%, with Morningstar pegging SpaceX's fair value at $63 a share.
That doesn't necessarily mean Morningstar is calling for the stock to drop. On the contrary, Nicolas Owens, its aerospace and defense analyst, thinks the stock could continue its surge in the months ahead purely thanks to market economics and investor sentiment.
"The investor enthusiasm could last indefinitely, and I think if you look at the market cap of Tesla over time, it shows that there's likely to be strong demand for these shares over the course of the next year," Owens told Business Insider on Monday.
Still, at these prices, he argues investors are pricing in "moonshot" scenarios for the company's business lines.
For example, he sees SpaceX eventually gaining around 4% of the total data center compute market through launching data centers into space. In his most optimistic scenario, which investors seem to be pricing in and which he assigns only a 7% chance of occurring, the company will capture 21% of the market.
While Owens remains skeptical about SpaceX's valuation, which is now larger than Amazon's, he said there are two things he'll be watching that will drive any potential upward readjustments to his fair value estimate.
Two ways Morningstar could move SpaceX's fair value up
The first is whether having data centers in space — if it proves possible from an engineering standpoint — becomes more cost-effective for companies than simply having their data centers on the ground.
The touted benefits of putting data centers into space are that they could be powered by solar energy without paying for cooling. That would, in theory, be a huge cost relief as data center energy needs are enormous.
But the economics of such a proposition have yet to be laid out plainly.
"If it isn't financially competitive with the terrestrial data center, then there's no point," Owens said.
Second, Owens will be waiting to see if SpaceX's Starship rocket becomes rapidly reusable, allowing it to carry more Starlink satellites, and potentially data center satellites, into space. The company is hoping to launch 350 rockets a year, up from around 165 currently.
The Starship rocket, which has undergone 12 test launches so far, is bigger than SpaceX's Falcon rocket, which will give the company the capacity to launch more satellites per launch, effectively reducing their costs. So far, the rocket's boosters are reusable, but the upper part of the rocket's heat shield tiles are not yet reusable.
"The Starship being reusable is really important because they can't do hundreds and hundreds of launches to get thousands of satellites up in space without a reusable ship, and it's not just reusable at all," Owens said.
If these projects are realized, or simply the probability of them being realized rises, Owens said SpaceX's Morningstar fair value estimate could rise. That doesn't mean, however, that SpaceX shares would necessarily climb, as these upside scenarios are already baked into the firm's stock price.
"The market seems to assume that it's already a done deal," he said.
While Owen's fair value estimate for SpaceX is not a price target nor a call on where its share price will go, he has written in recent Morningstar reports that he expects better entry points for investors going forward.
from Business Insider https://ift.tt/tTlwgnD
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