Why Rocket Lab Stock Bounced Back on Friday

Source The Motley Fool

Rocket Lab (NASDAQ: RKLB) shareholders received some wonderful news Thursday night when the U.S. Department of Defense announced that the company, along with privately held Stoke Space, had been added to "Lane 1" of Phase 3 of the National Security Space Launch program by U.S. Space Force.

In response, Rocket Lab stock soared by more than 7% in the opening minutes of trading Friday before retreating to about a 3.5% gain as of 10:05 a.m. ET.

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More good news for Rocket Lab

In its own press release, Rocket Lab clarified that NSSL Phase 3 Lane 1, or NSSL3(1), is a firm-fixed-price, indefinite-delivery/indefinite-quantity contract worth up to $5.6 billion for Rocket Lab if it wins all of the contracts on offer over the five-year period ending June 2029. In other words, NSSL3(1) is an umbrella contract that states the total amount of money up for grabs and lists all the space companies that can bid on the contracts to fulfill individual launches and be paid for them.

Rocket Lab now shares this list with Stoke Space, Blue Origin, United Launch Alliance, and SpaceX. A minimum of 30 launches are anticipated under NSSL3(1).

So Rocket Lab can bid on the individual launches. Before it can conduct launches under NSSL3(1), however (and be paid for them), it first needs to receive national security certification for its new Neutron rocket, which will require at least two successful launches.

Close-up view of engine firing at Electron rocket launch from LC-1 in New Zealand.

Image source: Rocket Lab.

Is Rocket Lab stock a buy?

Management anticipates the first launch of Neutron will occur in the second half of this year, with a second launch sometime in 2026. The company will be paid $5 million up front to help it cover the costs of earning certification for the Neutron.

In the best case, this means investors should expect the first money from this umbrella contract to start arriving probably no sooner than mid-2026. Assuming all goes well, though, this will help Rocket Lab achieve analysts' consensus target of $895 million for its 2026 revenue, and potentially help it generate nearly $84 million in positive free cash flow.

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Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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