Hints of a New Price Target as Rocket Lab Faces 'Incredible Vote of Confidence'

Remember last Wednesday? I wrote to you concerning long-time Sarge favorite and core "Stocks Under $10" holding Rocket Lab USA RKLB as that stock had broken out.

The firm had reported earnings that, while still not reflective of a profitable situation, did show steady improvement. There was nice growth in the business. Pricing power was becoming apparent, too. We lifted our target price all the way from $14 to $23 that day as the shares traded above our target price, closing with an $18 handle. The shares sold off the following day and found their footing once again on Friday. The low on Friday, before that footing was found, had been $16.80.

Come Monday, RKLB gained 1.5%. The shares are trading higher again on Tuesday morning, as I see a $20 handle. We know about the guidance. For the current quarter, Rocket Lab is projecting revenue generation of $125 million to $135 million. This brought the lower end of the range above the $122 million that Wall Street had been looking for at that time. GAAP gross margin is seen at 26% to 28% or an adjusted 32% to 34%. The firm sees an adjusted EBITDA loss of $27 million to $29 million for the period.

The Fundamentals Are Solid

For the first nine months of the fiscal year, Rocket Lab had generated operating cash flow of $-46.503 million. Tacking on capex spending of $45.539 million, that leaves free cash flow of $-92.042 million. That's not a positive and the firm is in no position to return capital to shareholders. That said, the balance sheet is strong.

Rocket Lab ended the recent quarter with a cash position of $442.389 million and with inventories of $114.435 million. This put current assets at $695.499 million. Current liabilities added up to $269.199 million, which is mostly in the form of contract liabilities. There is no (zero) short-term debt. That leaves the firm's current and quick ratios at a healthy 2.58 and 2.16, respectively.

Total assets came to $1.153 billion, including $132.602 million in goodwill and other intangibles. At 11.5% of total assets, this is not an issue to worry over. Total liabilities less equity came to $733.194 million including $46.915 million in normal long-term debt and $344.865 million in convertible senior notes. The firm has enough cash on hand to handle all of that debt. One does have to accept that, at some point, those convertible notes could have a dilutive impact on the stock. That's the one drawback I see here.

Wall Street

In response to those earnings, a number of analysts rated at five stars by TipRanks upped their target prices in the days that followed. Do they read TheStreet Pro? Maybe some of them. Who knows? Our net basis, for those that have been with me, is $4.26, so we were pretty early. Another three-figure runner? What can I say, the "Stocks Under $10" portfolio (wherever it is) is having a monster (on steroids) kind of year.

Going back to earnings, (all five stars):

Erik Rasmussen of Stifel Nicolaus reiterated a "buy" while taking his target from $15 to $22.

Sujeeva De Silva of Roth MKM reiterated a "buy" while taking his target from $7 to $25.

Ronald Epstein of Bank of America reiterated a "buy" and a $30 target price.

Cai von Rumohr of TD Cowen reiterated a "buy" and a $25 target price.

Jason Gursky of Citigroup reiterated a "buy" while taking his target from $13 to $22.

Back to the Chart

There's really not that much of a change in the chart since last week when I wrote up that piece and then touched on the chart again for Doug's Diary on Thursday. Readers can see that RKLB has reinforced its breakout from the Andrews' pitchfork that had been in place since the summer. That has the look of the start of a basing period of consolidation or what some folks call a "flat base." This is exactly what the doctor ordered for this stock. If RKLB can rest up here without coming in significantly, that would be an incredible vote of confidence by shareholders who are not taking the layup profits.

Relative strength has been overbought technically, which can be an indicator of momentum as much as it can be a negative, for two weeks. The daily MACD is about as aggressively bullish in nature right now as it has ever been for this name. What gives? We still have a $23 target price on the shares, but that $23 level can easily become another pivot should this base extend to the right. What's the next stop should something like that develop? Let's not get ahead of ourselves. 

OK, let's get a little ahead of ourselves. After $23, the next stop may start with a three.

At the time of publication, Guilfoyle was long RKLB