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Stocks for the Commercialization of Space Odyssey

Private space stations could soon become hotels thanks to these companies.

Vikram Barhat 21 September, 2022 | 4:28AM
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Restaurant in space

There’s now a new exotic experience for those looking for memorable ultra-luxe vacations. How about a new hotel, up in space, offering a giant window to the world below as you float in a state of weightlessness?

Hotel chain Hilton has just signed up a deal with aerospace firm Lockheed Martin to design astronaut facilities for the private space station Starlab, being built by Lockheed Martin and its partners. As space continues to fascinate and excite humans, commercial space tourism is projected to skyrocket to about US$9 billion by 2030, growing 37.1% annually from 2022 through 2030.

Intrepid investors drawn to the siren song of space tourism may want to look at the following players. Pioneers in the field of commercial space travel, these companies have technological prowess, strategic tie-ups, bold vision, and leadership backing ambitious projects.

 

Hospitality giant, Hilton Worldwide Holdings (HLT) operates over 1 million rooms across its 18 brands. Hampton and Hilton are the two largest brands representing 28% and 21% of the total room count, respectively. Managed and franchised represent the vast majority of adjusted EBITDA, predominantly from the Americas regions.

Hilton will soon be designing astronaut facilities for the private space station Starlab, being built by Lockheed Martin and its partners. In fact, the idea of an extra-terrestrial luxury space hotel isn’t new to Hilton. It was first suggested more than half a century ago in Stanley Kubrick’s classic 1968 film “2001: A Space Odyssey” which featured ‘Hilton Space Station 5’ aboard an orbiting space station.

The partnership with Lockheed Martin brings to fruition the dream of Barron Hilton, former chairman of Hilton Hotels, who famously said in 1967: "Scarcely a day goes by when someone doesn't ask me, jovially, when the Lunar Hilton is going to be opened. They're joking, of course -- but I don't see it as a joke at all."

Meanwhile, the hotel chain’s prospects on earth remain promising as travel demand bounces back in 2022. “We expect Hilton's room share expansion to be among the industry's fastest over the next decade because of an industry-leading pipeline, favourable next-generation traveller position supported by newer brands, and its highly rated loyalty program,” says Morningstar equity analyst, Dan Wasiolek.

Hilton's room growth will continue well above the 1.8% supply increase estimated for the U.S. industry, over the next decade, says Wasiolek, who recently raised the stock’s fair value from US$128 to US$136, prompted by stronger profitability and demand in 2022.

 

The world’s largest defence contractor, Lockheed Martin (LMT) operates multiple businesses. Its largest segment is Aeronautics, dominated by the massive F-35 program. Other segments include rotary & mission systems (the Sikorsky helicopter business), missiles and fire control, and space systems (satellites).

Lockheed Martin, in partnership with Nanoracks and Voyager Space, is developing the first-ever free-flying commercial space station, known as Starlab, expected to be operational by 2027. U.S. space agency NASA has awarded the partnership a US$160 million contract to design the Starlab.

This team is equipped to assist NASA to “expand access to LEO [low earth orbit] and to enable a transformative commercial space economy,” says Lisa Callahan, vice president and general manager, commercial civil space at Lockheed Martin, in a press release.

For now, though, defence primes like LMT are implicitly a play on the defence budget, often determined by a nation’s wealth and its perception of danger. “We believe that despite the increased U.S. debt/GDP ratio, defence spending will continue growing because of heightened geopolitical tensions caused by the Russia-Ukraine war,” says a Morningstar equity report.

In an increasing budgetary environment, “contractors will continue growing as modernization budgets increase to service the increased need to deter great powers conflict in Europe and Asia-Pacific,” points out Morningstar equity analyst Burkett Huey, who pegs the stock’s fair value at US$447.

Typical of the defence business, Lockheed Martin’s wide moat is a conspiracy of factors including product complexity that prevent new entrants, decades-long product cycles, a lack of alternative suppliers, and the switching costs of a risk-averse customer, notes Huey.

 

Defence contractor, Northrop Grumman (NOC) offers multiple business segments including aeronautics, mission systems, defence services, and space systems. The company’s aerospace segment creates the fuselage for the massive F-35 program, its defence systems segment is a long-range missile manufacturer, and its space systems segment produces various space structures, sensors, and satellites.

Northrop Grumman — along with its partners— was awarded US$125.6 million in initial funding by NASA to design a safe, reliable and cost-effective commercial space station in low earth orbit.

“Under this agreement, the Northrop Grumman team will deliver a free-flying space station design that is focused on commercial operations to meet the demands of an expanding LEO market,” said Steve Krein, vice president, civil and commercial space, Northrop Grumman, in a press release.

This contract is in addition to the US$935 million deal NOC was awarded by NASA to build the Habitation and Logistics Outpost (HALO), a spacecraft that would connect to the NASA Gateway, a lunar orbiting space station, part of NASA’s upcoming Artemis lunar mission.

Meanwhile, Northrop Grumman’s various defence-related operations remain on solid ground. The company is a prime contractor that has exposure to new development programs and contracts. “The defence budget allocation is a political process, which is inherently difficult to predict, so we favour companies [such as Northrop Grumman] with tangible growth profiles through a steady stream of contract wins, ideally to contracts that are fulfilled over decades,” says Morningstar sector strategist David Whistonwho puts the stock’s fair value at US$368. 

 

 

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About Author

Vikram Barhat

Vikram Barhat  A Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry, Vikram also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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