After Shares Triple This Year, How Far Can Rocket Lab Still Go?

Rocket Lab has performed extraordinarily well this year, with its stock surging 360% due to solid space prospects and AI breakthroughs, accompanied by excellent financial execution. Investors may feel optimistic about further gains, especially with potential subsidies for the sector when Trump takes office.

The electron rocket company on Wednesday finalized a $23.9 million award from the U.S. Department of Commerce to increase its compound semiconductor manufacturing capability and capacity at its Albuquerque, New Mexico facility. The semiconductors produced by Rocket Lab are used in space-grade solar cells and other optoelectronic products, which are crucial components for national security and commercial applications. Its Electron rocket, capable of placing small satellites in low Earth orbit (LEO) with a lift capacity of approximately 300 kilograms, is a key part of its offerings.

Rocket Lab has just completed its 54th Electron mission, the 12th launch in 2024, with additional Electron launches planned for the remainder of the year. Notably, a pair of Electron rockets was launched within 24 hours of each other on November 24, a first for the company, showcasing its advanced technology.

Companies in the telecommunications sector rely on small satellites to deliver their services, boosting demand for Electron. The company has also developed the Neutron rocket, a medium-lift launch vehicle capable of carrying 13,000 kilograms to low Earth orbit, which may enable it to compete in the medium-lift segment, potentially challenging Musk's SpaceX. The addressable market is promising.

Both the Biden and incoming Trump administrations regard rockets as significant projects to support aerospace and advance competition with China and other countries. Trump has visited SpaceX's launches several times and highly praised Musk's execution. According to McKinsey & Company, the global space economy is expected to be worth $1.8 trillion by 2035, and this growth may accelerate under Trump's direction.

Although Rocket Lab is not yet profitable, its financial performance is noteworthy. In the third quarter, revenue increased by 55% year over year to $105 million, with an adjusted EBITDA loss of $30.8 million. The demand is high, with a $1.05 billion backlog reflecting the high demand for launches. Management expects revenue to be between $125 million and $135 million in the fourth quarter, a 108% to 125% increase, with an adjusted EBITDA loss of $27 million to $29 million in the fourth quarter of 2024. Overall, revenue is soaring, and profitability is improving.

Citi analyst Jason Gursky maintained a buy rating on the stock and raised RKLB's target price to $22 from $13. Gursky added that the successful booking of the first customer for the Neutron rocket indicates strong market acceptance and enhances the credibility of the product, suggesting potential upside beyond what management currently anticipates.

Gursky also stated that the new federal defense contract and a multi-launch agreement for Neutron demonstrate Rocket Lab's growth potential.

Separately, Bank of America Securities analyst Ronald Epstein gave RKLB stock a buy rating and set a Street-high price target of $30. Epstein believes that Electron's rapid growth, the upcoming launch of the Neutron rocket, and the company's strategic partnerships with government and commercial partners will all contribute to significant revenue growth in the coming years.