Rocket Lab’s $46 Billion Contract: What Investors Need to Know
Two weeks ago, Rocket Lab (NASDAQ: RKLB) made headlines by announcing its inclusion in a $46 billion contract “to provide hypersonic test launch capability with its HASTE launch vehicle … for the United States and the United Kingdom.” For a small company that generated $436 million in revenue over the past 12 months, such news might be expected to significantly impact its stock price. Indeed, it did have an effect, but perhaps not as dramatic as one would assume.
Stock Performance Following the Contract Announcement
Since the contract announcement, Rocket Lab’s stock has increased by about 15%, largely on the day of the news. This rise marks a solid advance for the company, transitioning from a space firm to a defense contractor. However, the response may not fully reflect the potential implied by the $46 billion deal.
Understanding the Contract Details
The fine print offers important insights. Rocket Lab’s participation is framed within the U.S. Air Force’s Enterprise-Wide Agile Acquisition Contract (EWAAC), a $46 billion indefinite delivery-indefinite quantity (IDIQ) contract designed for the rapid acquisition of innovative technologies and services.
“Rocket Lab has been selected by the U.S. Air Force to participate within its Enterprise-Wide Agile Acquisition Contract (EWAAC), designed for the rapid acquisition of innovative technologies, engineering services, and technical solutions.”
The $46 billion figure is not guaranteed. It depends on a sufficient number of task orders awarded, along with their respective dollar amounts, under the broader IDIQ framework. Furthermore, Rocket Lab is just one participant among many in this contract.
Competition and Potential Revenue
A deeper dive into EWAAC reveals that 297 vendors will be vying for work under the contract. If every participant wins a proportional share, Rocket Lab could see as little as $155 million. Over a contract expected to run through 2031, that would break down to about $22 million annually.
Potential Revenue Outlook
That $22 million represents approximately 6% of Rocket Lab’s current annual revenue. Although there’s a possibility the company could secure a larger share based on its standing in the space sector—where it ranks as the second most prolific rocket launcher in the U.S.—this outcome isn’t assured.
Moreover, larger competitors like Boeing (NYSE: BA), L3 Technologies (NYSE: LHX), and others may overshadow Rocket Lab’s competitive edge.
Outlook on Rocket Lab’s Investment Potential
Notably, in addition to EWAAC, Rocket Lab announced its participation in the UK’s Hypersonic Technologies & Capability Development Framework (HTCDF), which, while smaller—valued at $1.3 billion—faces less competition with approximately 90 companies involved. If funds are distributed evenly, Rocket Lab could receive about $14.5 million from HTCDF, translating to around $2 million annually over a seven-year term.
Thus, under the most conservative estimates, Rocket Lab’s additional revenue from these contracts could total around $24 million annually. Nevertheless, the overall impact on growth for Rocket Lab could remain modest unless the company secures a larger share of contract funds.
Investment Considerations for Rocket Lab
Before investing, prospective shareholders should consider that Rocket Lab did not make the list of the 10 best stocks identified by analyst teams for current investment opportunities, which could offer more substantial returns. These stocks have a proven track record, as highlighted by past performance in well-known companies like Netflix and Nvidia.
In summary, while Rocket Lab’s stock price has experienced a positive movement, the actual financial implications of these contracts may not significantly enhance its investment attractiveness in the near term.
Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends BAE Systems, Lockheed Martin, RTX, and Rocket Lab USA.
The views expressed here reflect the author’s opinions and do not necessarily represent those of Nasdaq, Inc.
