The space sector's recent sell-off as Space Exploration Technologies (SPCX) headed to public markets is "unwarranted," with the industry's long-term growth prospects remaining strong, KeyBanc Capital Markets said in a note emailed Monday.
SpaceX -- Elon Musk's rocket and satellite company -- surged 20% on Monday after finishing its trading debut on Friday up 19%.
Space companies Rocket Lab (RKLB), Firefly Aerospace (FLY) and Intuitive Machines (LUNR) plunged on Friday. The sector sold off sharply over the weeks leading up to SpaceX's Nasdaq debut, KeyBanc said.
"We think this (sell-off) is unwarranted and largely systematic in nature, as funds make room for the space behemoth," KeyBanc analyst Michael Leshock said. "The same macro drivers that drove the space sector's growth over the past two years have only accelerated and are not contingent on whether (SpaceX) is a publicly traded company."
The brokerage said the sector's growth profile is backed by a number of factors, including inadequate rockets to meet the demand of spacecraft and satellites that want to be in orbit.
Meanwhile, the proposed US defense budget for 2027 includes $56 billion for space systems, which would mark nearly a doubling in funding versus 2026, Leshock said.
"There is a significant push by the US government to advance its capabilities in space," Leshock said. "Adversaries of the US, including China and Russia, have demonstrated advanced on-orbit capabilities in recent years, and this has pressured the US to continue increasing investment in these areas."
Additional growth factors include the National Aeronautics and Space Administration's initiatives to build a Moon base and a wave of industry consolidation, according to the note.
KeyBanc upgraded ratings on Rocket Lab and Firefly Aerospace to overweight from sector weight and established price targets of $135 and $50, respectively.
"We see unique, (long-term) growth avenues for both," Leshock wrote.
Rocket Lab's stock rose 6.7% on Monday, up nearly 57% so far this year. Firefly shares gained 4.7%, bringing year-to-date gains to 49%.
Rocket Lab has the capability to eventually build its own satellite constellation, ultimately adding high-margin, subscription-based revenue streams in the future, the brokerage added.
"(Rocket Lab) is the clear #2 to (SpaceX), and could achieve a similar growth trajectory to (SpaceX) over time," Leshock wrote.
Firefly is among the top commercial space companies with exposure to NASA's lunar initiatives, Leshock said.
