Key Points
Rocket Lab announced Monday that it will participate in a new $1 billion Space Force program.
Space Force itself announced the same thing more than two weeks ago.
The average annual value of the contract to winners may be as little as $6.5 million.
"Rocket Lab onboarded to U.S. Space Force's $981M NITE-STAR Program to advance space test and training infrastructure," blared the headline Monday evening. Managed by the U.S. Space Force's Space Systems Command, the announcement proceeded to explain, NITE-STAR will "support a distributed test and training architecture to help prepare space operators for contested scenarios." Fast-growing space company Rocket Lab (NASDAQ: RKLB) will participate in the program -- and potentially win up to $981 million in contracts.
Good news for Rocket Lab?
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
Yes, but... the devil's in the details.
Image source: Rocket Lab.
What we know about NITE-STAR
Someone worked late nights to come up with the NITE-STAR acronym, which, in full, reads as the "NSTTC Innovative Technology & Engineering – Space Test and Range" program. Announcing its participation, Rocket Lab explained that NITE-STAR will develop "distributed test and training architecture to help prepare space operators for contested scenarios."
Translated from Pentagon-speak, that appears to mean NITE-STAR is a wargames program that will allow Space Force Guardians (that's the official name for servicemen and servicewomen in this military branch) to train for and practice military operations in space. Participating in this near-billion-dollar program holds promise for Rocket Lab. What you may not know, however, is that Rocket Lab is only one of several defense companies working on NITE-STAR.
What you also may not know is that the actual value to Rocket Lab will probably be a whole lot less than $981 million.
NITE-STAR by the numbers
NITE-STAR first appeared in a March announcement on GovConWire.com seeking requests for proposals (RFPs) to build the architecture. Winners were announced on the Department of Defense website late last month.
And that's where we find the details of this contract.
Two stand out. First, the NITE-STAR program will last 10 years (so the $981 million contract ceiling must be divided by 10 to determine how much will actually be paid out annually). Second, Rocket Lab is only one of 15 companies allowed to bid for task orders under the contract. (Other winners include such big space names as Lockheed Martin, Northrop Grumman, and Viasat.)
So take that number that you already divided by 10, and divide it again -- this time by 15.
The result of all this dividing is that, on average, investors can expect each winner of a NITE-STAR task order to collect about $6.5 million per year over the contract term.
What it means to Rocket Lab investors
That number -- $6.5 million -- is, of course, a whole lot less impressive number than $981 million, so you can understand why Rocket Lab accentuated the more positive number in its press release. Still, the upshot for Rocket Lab investors is that, while their company may win some funds from NITE-STAR, it probably won't be enough to move the needle.
With Rocket Lab currently pulling in nearly $770 million annually, the near-billion-dollar NITE-STAR contract will likely add less than 1% to the company's revenue. It's better than nothing -- but it's not enough to turn Rocket Lab stock -- which trades at more than 60 times sales and is unprofitable -- into a buy.
Sorry to be the bearer of bad news.
Rich Smith has positions in Rocket Lab. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.