Wall Street investors are eyeing space companies favorably as the sector proved to be recession-proof during the past two years.
Increased demand is one reason for continued improved performance, said Chris Quilty of Raymond James and Associates.
“We’re seeing increased consumer demand – smart phones, broadband Internet and high-definition television,” he said, “and that doesn’t include the government side of it.”
Wall Street was the topic of one of the forums on the second day of the Space Symposium, a four-day event sponsored by the Colorado Springs-based Space Foundation.
It takes more than just higher demand to capture the attention of weary institutional investors, said Heidi Wood of Morgan Stanley. It also takes an improved bottom line.
“That’s the way the best companies do it – they hit those numbers quarter after quarter,” she said. “And even one or two companies can lift the rest.”
Investment banks are becoming more interested in space as they forget the financial meltdown of 2008, Quilty said. As they become less risk-averse, space is looking better.
However, government involvement in the space industry is a mixed blessing. Government increases the risk because of faulty contracting rules that can add to expenses.
“If there was one thing I wish Congress would change, it’s the contracting rules,” he said. “Those rules cause waste; they cause delays in an industry that needs to be more nimble.”
Wood called the contracting rules a “grievous harm” against government’s partners.
“It has a dampening effect, particularly on second- and third-tier companies, the ones that really suffer during a market downturn,” she said. “Less is more in business, but more is more in bureaucracy. You can’t survive if you subscribe to the bureaucracy point of view.”
During the 1990s, the space industry saw some bumpy times, and the 2000s have become the “lost decade” for the investment community. The time is ripe for more investment – and interest is growing.
Even some companies that “failed” and went private for a few years are seeing renewed interest from investors. Even two years ago, increasing broadband access wasn’t a winner for Wall Street. Today, that demand means higher returns on stocks, Quilty said.
The best thing NASA and the government can do to increase private investment – and ultimately engage private companies more in the space arena – is to erase uncertainty about NASA’s new direction.
“Everyone knows the government announces a stance, and puts money into it – only to pull out of it later,” Wood said. “The Constellation program is one of the examples. They pulled it, and pulled the rug from under companies supporting it.”
Still, the space arena is getting more crowded, which can mean more opportunities for investors. If some of the larger companies go public, Wall Street will pay attention, Wood said.
“More companies going public will increase the momentum for investors,” she said. “Then investment banks will create portfolio managers solely for the purpose of investing in space. There aren’t very many of those now.”
She also advised NASA to “go slow” with its new reliance on the private sector. If companies go slowly now, investors will be more tolerant of bold moves later.
“It isn’t sexy,” she said. “But it is smart. Moving incrementally means changing the perception of risk – which is so high in the space industry.”