Resetting a Rocket Lab Price Target After Record Quarter

On Monday evening, long-time core Sarge-folio holding and "Stocks Under $10" name Rocket Lab Corporation (RKLB)  released the firm's third quarter financial results.

For the period ended September 30, the firm posted a GAAP EPS of -$0.03 on revenue of $155.08 million. That top-line number, which was a record, beat Wall Street while sporting year-over-year growth of 48%. The bottom-line print easily beat the consensus view which was for a loss of 10 cents per share. This data was good for a second consecutive quarter of accelerating sales growth and an uptick from the 54.9% growth experienced for the year-ago period.

During the quarter, the firm secured 17x Electron launch contracts, which was a record. The firm is on track to close the year with more than 20 such launch contracts during the current quarter. The firm also officially opened its Launch Complex 3, which is the test and launch site for the new medium-lift reusable Neutron rocket. Speaking of the Neutron, arrival of the new rockets is expected in Q1 2026, pending completion of the vehicle's qualification testing program.

The CEO...

Regular readers know that Rocket Lab CEO Sir Peter Beck has been working his way up to my upper pantheon of CEOs. 

Taken form the press release, Beck said, "With progress across our major space systems programs, record backlog of contracts for our launch services business, and well-timed, strategic M&A in growth areas that are well-aligned with next-generation defense programs like Golden Dome and the Space Development Agency’s future constellations, our momentum is strong and we’re poised to deliver long-term exciting growth.”

Operations

For the quarter, Rocket Lab drove product revenue of $104.042 million (+37.3%) and service revenue of $51.038 million (+101.2%). That gets us to the $155.08 million total which was up 48%. The cost of that revenue grew 27.3% to $97.766 million. This left a gross profit of $57.214 million (+104,7%) as gross margin expanded all the way from 26.7% to 37%.

Total operating expenses increased 45.5% to $116.283 million. This left an operating income/loss of -$58.969 million, down from -$51.899 million. After interest, other income and expenses and taxes, the firm's net income loss for the quarter improved from -$51.939 million to -$18.257 million thanks to tax related benefit of $41.091 million. This works out to a GAAP EPS of -$0.03, up from the year-ago comp of -$0.10.

Guidance

For the current quarter, Rocket Lab sees revenue generation of $170 million to $180 million, taking the midpoint of the range above the $172 million that Wall Street had in mind. That would be good for annual growth of more than 32%. The firm also sees an adjusted gross margin of 43% to 45% and adjusted EBITDA of -$29 million to -$23 million.

Fundamentals

For the period reported, Rocket Lab generated operating cash flow of -$100.99 million. Tack on capex spending of $106.631 million and that leaves "free" cash flow of -$207.621 million. Rocket Lab is obviously not yet in a position to return capital to shareholders.

Looking over at the balance sheet, Rocket Lab ended the quarter with a cash position of $976.74 million and inventories of $144.999 million. That made for current assets of $1.316 billion. Current liabilities add up to $414.457 million including just $17.09 million worth of short-term debt. At the headline level, that makes for current and quick ratios of 3.17 and 2.82, respectively. These are very strong levels.

Total assets amount to $2.221 billion including $449.693 million in goodwill and other intangibles. At 20% of total assets, this is not yet concerning. Total liabilities less equity comes to $940.409 million. This includes $347.014 million in convertible senior notes and $51.267 million in more traditional style long-term debt. This is a muscular balance sheet. The firm has enough cash on hand to take care of its entire debt load twice and still get change back. That said, convertible notes at some point, if the stock does well, will likely dilute the equity to some degree.

Wall Street

On Tuesday morning, two different analysts rated at five stars (out of five) by TipRanks, increased their target prices for RKLB:

• Erik Rasmussen of Stifel Nicolaus reiterated his "buy" rating on RKLB while raising his target price from $65 to $75
• Sujeeva De Silva of Roth MKM reiterated his "buy" rating on RKLB while raising his target price from $60 to $75

My Thoughts

The business is clearly growing like a weed. With that, so are operating expenses. Thank goodness for that tax benefit. 

The firm is still losing money and is still burning cash. That was and is still expected for now. The debt load is clearly under control. The balance sheet displays a level of fiscal discipline not all that common in this age. The cash position dwarfs the debt-load. The firm can go on like this for long as it needs to. The growing links to the defense industry will only accelerate growth, which will be key. 

​Readers will see that the potential for a bearish head-and-shoulders pattern that I sent you in that alert last week is still present. Whether or not this rebound is a sustainable rally or the further development of that unwelcome pattern is not something the chart can tell us right now.

On the bright side, relative strength is on the mend and never entered into oversold territory. The daily MACD is still a mess, but the histogram of the nine-day EMA is working its way back towards the zero-bound as the 12-day EMA appears to be rounding. Should it head back toward the 26-day EMA, that would be a welcome development for the RKLB bulls.

I had told readers last week that my target price had been cancelled and was under review until after these earnings. It is now time to re-establish a target being that this is one of my largest long positions.

Target Price: $70 (reset)

Pivot: 50-day SMA (currently $56) 

Add: On a take and hold of that 50-day line

Panic: Loss of the 200-day SMA (currently $36)

At the time of publication, Guilfoyle was RKLB equity.