Robinhood, Virgin Galactic, and Moderna. What investors need to know

Robinhood stock

Combinations of calls and puts with a strike price of $57 per share for the August 13th expiration are trading at $18.20 per share, implying a 32 percent move in either direction between Friday and seven days from now, according to options trader and MarketRebellion.com co-founder Jon Najarian.

Following HOOD’s debut on the Nasdaq last week, Wednesday marked the first day options could be traded in the stock. According to Michael Khouw, president of Optimize Advisors, Robinhood quickly became one of the most actively traded single-stock options.

“The options market anticipates a fairly volatile road ahead in the coming weeks,” said Khouw.

On Friday, Robinhood’s stock increased by 12%. Following Thursday’s announcement that existing shareholders will sell up to 97.9 million shares over time, the trading platform reiterated that it is not selling any more stock. On Thursday, the stock fell by 27% as a result of this development.

The stock trading app also clarified Friday morning that these sales would not begin immediately, alleviating concerns about an immediate increase in stock supply that could weigh on the shares.

On Wednesday, Robinhood experienced a 50% increase, which appeared to be driven by retail investors. According to Khouw, Robinhood’s strike calls were the tenth most active single-stock option on Wednesday. He stated that while there were some institutional trades, the average trade size of the most active contracts (three contracts) suggests that the majority of the volume is retail/self-directed.

“I actually find this to be one of the most fascinating IPOs that I have seen in my career,” Josh Brown, co-founder and CEO of Ritholtz Wealth Management, said on “Halftime Report” on Thursday. “I would believe you if you told me this stock would end the week at $30. I’d believe you if you told me it’d end the week at $120. You could persuade me of either outcome, and there would be no need for a reason.”

In an ironic twist, Robinhood helped pave the way for many retail investors to trade options and on margin. Trading on margin entails borrowing money from your brokerage to buy stocks. Options trading accounted for approximately 38% of Robinhood’s revenue in the first quarter.

“It’s a big step up from cash investing to buying options and buying stock on margin or shorting stocks,” ex-SEC Chair Jay Clayton said on Friday. “You must have a much better understanding of short-term market movements and how expensive they can be.”

Virgin Galactic stock

According to Bernstein analyst Douglas Harned, demand for the company’s spaceflight tickets, which are now selling for $450,000 and up, will “significantly exceed supply for the next few years.” However, Harned stated that the postponement of commercial service until the second half of 2022 means “a longer wait for cash flow.”

Virgin Galactic stock rose nearly 12% in Friday trading from its previous close of $31.53.

“Another pushout of commercial service is a clear negative because now would be the time to capitalize on customer enthusiasm,” UBS analyst Myles Walton wrote in an investor note.

Here are the major analysts’ reactions to Virgin Galactic’s results, as well as their ratings and price targets.

Kristine Liwag of Morgan Stanley: Equal-weight, $25

“We are excited to learn more about Eve (mothership) enhancements as well as Delta (spaceship) production plans. However, the road to commercial scale is difficult. Virgin Galactic currently has only one operational mothership and one operational spaceship (Unity)… We believe that the positive media momentum will result in a temporary increase in ticket prices. We estimate that Virgin Galactic will be able to book 1,110 passengers for $450,000.”

Myles Walton of UBS: Neutral, $38

“Positives in print: $450,000 ticket price and flight time between flights… Negatives in the print: commercial service phasing out, fleet limitations. Another commercial service pushout is a clear negative, as now is the time to capitalize on customer enthusiasm. Furthermore, the op tempo is hampered by the existing fleet’s limitations… Increased op tempo (and pax capacity, as well as clearing the von Karman line) is dependent on the production and deployment of the Delta class, which we believe will be 2+ years away from service.”

Douglas Harned of Bernstein: Market-perform, $31

“We do not anticipate Delta entering service before 2024… As flight capacity gradually increases, the challenge will be to work through the existing 600 passenger backlog. Without the Delta model to boost volumes, it may take until after 2024 to begin flights with more capacity. It is unclear what this delay will mean for new ticket sales, but we continue to believe that demand will significantly outnumber supply over the next few years. However, getting high-priced new tickets, including those for scientific microgravity experiments, to be used will take time. It is unclear how a delay will affect demand.”

Austin Moeller of Canaccord Genuity: Buy at $48.

“We believe the price increase is reasonable, with the quoted $450k coming in below the $500-$600k range estimated in many news reports… While the company’s new focus on improving the efficiency of existing spaceships and scaling up the Delta-class fleet is somewhat disappointing, we see it as a prudent strategic decision. In any case, 2022 was likely to feature only a small number of customer spaceflights. Virgin Galactic will be much better positioned to ramp up EBITDA and free cash flow generation over the course of the decade with a higher launch rate for Unity and Imagine, as well as a new fleet of vastly more capable spaceships and motherships.”

Moderna stock (NASDAQ: MRNA)

“We continue to be impressed with the underlying MRNA story, technology, and management execution. However, “a burgeoning valuation has outstripped our current views of the breadth and depth of this promising story,” Oppenheimer analysts Hartaj Singh and Justin Kim wrote in a note Thursday.

Oppenheimer reduced the stock’s rating from outperform to perform.

Piper Sandler downgraded the stock from overweight to neutral.

Moderna reported second-quarter earnings that exceeded Wall Street expectations on Thursday. The company emphasized the high revenue generated by its Spikevax Covid-19 vaccine, as well as data indicating that its booster shot performed well in protecting against the highly contagious delta variant. Moderna also discussed an mRNA vaccine and therapeutic development pipeline.

The two investment banks were impressed with what they heard from the company and are confident that Moderna will grow. The firms, however, believe that much of the good news has already been priced into the stock.

Moderna’s stock has risen nearly 300 percent this year. In comparison, the Nasdaq Composite is up about 16%, and the Nasdaq Biotechnology Index is up about 14%.

“We simply believe that Spikevax and near-term pipeline value are captured in Moderna’s current $179 billion fully-diluted valuation,” said Piper Sandler analyst Edward A. Tenthoff in a note Friday.

Piper Sandler set a $445 price target on the stock, which is roughly 7% higher than Thursday’s closing price of $416.26.

Oppenheimer did not set a price target, but stated that it may change its rating as future projects progress.

“We note that as MRNA’s pipeline progresses, particularly across other modalities, we may be able to become more constructive.” “For the time being, we will stand on the sidelines and watch the dream unfold,” Oppenheimer said.