SpaceX stock just handed Wall Street a lesson in bad timing.
Days after analysts at more than a dozen banks rolled out price targets that were almost uniformly bullish, the shares tumbled below their $135 IPO price for the first time, then kept falling toward $125. The reversal is jarring for a company whose Nasdaq debut in June was the largest in U.S. history: shares that peaked near $211 within three days of trading have now shed nearly 60% of their value, leaving even early allocation winners facing a loss if they sell today.
The big retreat blindsided the top Wall Street backers. Early-ish in July, analysts at eighteen of the banks that handled probably the most celebrated IPO of all time issued their outlooks for SpaceX. The research notes pretty much flooded all at once, as is typical 25 days after a new issue starts trading.
The SpaceX deal provided a giant payday for these underwriters. All told, they pocketed $500 million before expenses representing a 0.66% fee on the $75 billion raised. In a typical offering, says Jay Ritter, the University of Florida professor who's the world's leading expert on IPOs, the banks tally all of their expenses, subtract that number from the total take, and divide the net figure by their percentage allocation of shares. For example, five banks, Goldman Sachs, Morgan Stanley, J.P. Morgan, Citigroup and Bank of America got assigned roughly 85% of shares for sale, and hence would garner the lion's share of the half-a-billion, less costs that are likely a small fraction of that bonanza.
The SpaceX offering featured twenty-three banks, a crew that ranged from the aforementioned giants to asset managers Bernstein and Mirae of South Korea. Of the group, five didn't provide targets or ratings at all, a subset that includes Santander of Spain and Barclays of the U.K. A sixth, William Blair, awarded only an "outperform" recommendation, and didn't posit a future price.
The other seventeen did forecast a specific number 12 to 18 months out, the standard period for Wall Street price targets. The highest call came from Blair's fellow brokerage Raymond James at $800; the lowest was Stifel's prediction of $190. The effective benchmark for gauging the percentage increase each target represented is $160, where SpaceX closed on July 6, the day before most of the projections emerged. Hence, Raymond James heralded a 400% explosion by 2031, and Stifel at the bottom of the range augured a 19% rise.
So even then, one extreme was mildly favorable, the other wildly enthusiastic. Negative or neutral didn't appear. The 15 banks in between all tilted towards big time fandom. Of those, the only one that could qualify as an "outlier" was Morgan Stanley, which topped the group at $300, a number 90% beyond the $160 SpaceX reached the day prior to the release of most projections. The fourteen others are tightly packed. Nine are crammed between $200 and $225, a variance of just 12.5%, while another five cluster between $235 and $250, a range of only 6.3%.
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