New Target Price for Rocket Lab to Match Outstanding Balance Sheet

Yeehaw! On Tuesday evening, long-time Sarge favorite and former core "Stocks Under $10" portfolio holding Rocket Lab USA RKLB released the company's third quarter financial results. For the three-month period ended September 30, Rocket Lab USA posted a GAAP EPS of $-0.10 on revenue of $104.808 million. The earnings print beat Wall Street by a penny, while the sales number not only beat expectations, but was good enough for year-over-year growth of 54.9%. 

During the quarter, the firm has already achieved 12 Electron launches to date, which is a new firm record. The firm has also signed several new Electron launch contracts during the quarter with a total value of $55 million with an average selling price of $8.4 million, which would be a 67% price increase. For those unaware, the Electron is a partially-reusable orbital launch vehicle. 

Rocket Lab signed, during the quarter, a service agreement for multiple launches on the large Neutron launch vehicle with a confidential commercial satellite constellation operator. The firm also announced a federal defense contract that supports the development of its Archimedes engine with the U.S. Air Force Research Laboratory.

Additionally, the firm has completed production and delivery of two spacecrafts on budget for NASA's ESCAPADE mission to Mars. The firm has been selected by NASA to complete a study contract to retrieve samples from Mars.

Operations 

As revenue was growing 54.9%, the cost of those revenues increased 45.7% to $76.812 million. That left a gross profit of $27.996 million (+87.1%) as gross margin improved from 22.1% to 26.7%. Operating expenses grew 48.4% to $79.895 million, leaving an operating income/loss of $-51.889 million, down from $-38.859 million for the year-ago comparison. After accounting for interest, FX losses, other income and taxes, net income/loss printed at $-51.939 million, down from $-40.568 million or $-0.10 per fully-diluted share, down from $-0.08.

New News 

As alluded to above, Rocket Lab announced on Tuesday that the firm had signed a multi-launch agreement with a commercial satellite constellation operator for the new medium-lift Neutron rocket. There will be two dedicated missions starting from mid-2026, launched from Rocket Lab Launch Complex 3 at Wallops Island, Virginia.

The CEO 

CEO Sir Peter Beck (remember, Rocket Lab USA operates out of both the U.S. and New Zealand) commented in the press release: “In the third quarter 2024 we once again executed against our end-to-end space strategy with successes and key achievements reached across small and medium launch, as well as space systems."

Beck added later: "We expect to close out the year strongly with more Electron launches scheduled in November and December, alongside continued progress across Neutron and space systems, that is behind our guidance for a record $125 million to $135 million revenue quarter in Q4.”

Fundamentals 

For the first nine months of the fiscal year, Rocket Lab has generated operating cash flow of $-46.503 million. Tack on capex spending of $45.539 million and that leaves free cash flow of $-92.042 million. Obviously, the firm is not yet in a position to return capital to shareholders. 

Turning to the balance sheet, Rocket Lab ended the quarter with a cash position of $442.389 million and with inventories of $114.435 million. That put current assets at $695.499 million. Current liabilities add up to $269.199 million, which is mostly contract liabilities. There is no short-term debt. That leaves the firm's current and quick ratios at a robust 2.58 and 2.16. 

Total assets amount to $1.153 billion including $132.602 million in goodwill and other intangibles. At 11.5% of total assets, this is not an issue. Total liabilities less equity comes 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 this debt and this is a really strong balance sheet. One does have to accept that at some point, those convertible notes could have a dilutive impact on the stock.

Guidance 

For the current quarter, Rocket Lab is projecting revenue generation of $125 million to $135 million. This brings the lower end of the range above the $122 million that Wall Street had been looking for. GAAP gross margin is seen at 26% to 28% or, if adjusted, 32% to 34%. The firm sees an adjusted EBITDA loss of $27 million to $29 million for the period.

My Thoughts 

As I work through the night, I see that RKLB has peaked at $20.46, which was up almost 40% from Tuesday afternoon's closing price. I now see the shares trading well ahead of the U.S. open, with a $19 handle. The improving execution by the company is dramatic. The balance sheet is in outstanding condition, and the guidance is strong. Not much more we need to know. Coming in, more than 17.5% of the entire float was held in short positions, so we may see a blow-off top here on a short squeeze. Therefore, if you have been with me, I suggest, as I will be doing myself, taking a little (not much) off as the stock has now blown away my $14 target price.

Forget the falling-wedge and the double-bottom patterns that set up this now incredible rally in the shares of RKLB. Going back to mid-August, the stock has nicely developed a three-month rally that fits fairly well into an Andrews pitchfork model. The upper trendline of the model will serve as the upside pivot that will likely be triggered this morning. 

Still, don't lose sight that part of this is likely a short squeeze. The stock will need to consolidate, which is when we can buy back the portion that might be sold as an act of discipline in response to the breaking of a target price. Though the daily MACD is postured quite bullishly, the stock will be technically overbought until we see that basing occurs.

Rocket Lab USA (RKLB)

Target price: $23 (up from $14)

Pivot: $16 (upper trendline of pitchfork) 

Add: Down to 50-day SMA (currently $9.60)

Panic: On loss of 50-day SMA.

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