Why SpaceX Peer Rocket Lab Could Explode After VACQ Merger


Aug. 4 2021, Published 8:14 a.m. ET

Space stocks have been volatile in 2021. The high point was Virgin Galactic’s successful space flight. Several space companies are going public in 2021 through a SPAC reverse merger. Rocket Lab is set to merge with Vector Acquisition (VACQ). The company competes with Elon Musk’s privately held SpaceX. Should you buy VACQ stock before the merger date?

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On Aug. 3, VACQ stock closed at exactly $10, which is the SPAC IPO price. The stock made a 52-week high of $15.15 and is currently trading near its 52-week lows of $9.72.

Why has VACQ stock fallen?

VACQ stock has fallen victim to the sell-off in growth names. Companies that have their earnings skewed towards the future have fallen out with investors. Also, the SPAC sell-off has weighed on VACQ’s price action.

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When is the VACQ-Rocket Lab merger date?

The meeting for VACQ’s merger with Rocket Lab is scheduled for Aug. 20. The merger would happen once shareholders approve the merger. After the merger, the combined entity would trade under the ticker symbol “RKLB” on Nasdaq. The warrants would trade under the ticker symbol “RKLBW.”

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Rocket Lab versus SpaceX

Rocket Lab is an end-to-end space company. Along with SpaceX, it's the only commercial company in the U.S. that has delivered regular access to the orbit. It has deployed 97 satellites in 16 missions so far. Since SpaceX is privately held, you can't invest in the company. Rocket Lab looks like a good way to play the space industry.

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Rocket Lab forecasts that the TAM (total addressable market) for the satellite launch and space application and system market will grow to $1.4 trillion by 2030 from $350 billion currently.

The space market is growing fast and Rocket Lab is among the first movers in the industry. Rocket Lab has in-house rocket production capabilities and can produce a rocket every week. Also, the company’s Electron is the only reusable orbital-class small rocket.

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Rocket Lab stock valuation

The merger with VACQ values Rocket Lab at an equity value of $4.82 billion and an EV of $4.08 billion. As part of the merger, it will receive $745 million as cash, which will help fuel its growth. The cash would include $320 million from the SPAC and $467 million as a PIPE investment.

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Rocket Lab expects to post revenues of $69 million in 2021, which it expects to gradually rise to $749 million in 2025 and $1.57 billion in 2027. The company has an active pipeline of $2.2 billion.

Rocket Lab expects to achieve breakeven on the adjusted EBITDA in 2023. It's forecasting the adjusted EBITDA to rise to $119 million in 2025 and expects the adjusted EBITDA margins at 22 percent in the year. Looking even further, the company expects its adjusted EBITDA margins to expand to 32 percent in 2027 and expects to post an EBITDA of $505 million in the year.

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Should you buy VACQ stock now before the Rocket Lab merger?

VACQ stock looks like a good buy now ahead of the merger with Rocket Lab. The stock trades at a 2025 EV-to-sales multiple of 5.4x and a 2025 EV-to-EBITDA multiple of 34.3x. The multiples are based on the forecasts provided by the company.

While these forecasts should always be read with a pinch of salt, Rocket Lab’s first mover advantage, integrated business model, and expected growth in the space economy makes it a good bet especially after the recent fall in VACQ's stock price.


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