Why Planet Labs Stock Is Gaining Altitude

Planet Labs (NYSE: PL) stock fell along with the rest of the stock market earlier this week, but thanks to some kind words from investment bank Morgan Stanley, the space company is quickly gaining back lost ground.

On Thursday, a raised price target from the investment banker helped stop the stock's decline, and added a small fraction of a percent to Planet Labs' market cap. Today, Planet Labs stock is up another 3% through 10 a.m. ET.

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What Morgan Stanley said about Planet Labs

In a report light on details about Planet Labs in particular, Morgan Stanley still raised its price target on Planet Labs stock to $4.50 per share, while leaving the stock's rating at equal weight (i.e., hold). This was, incidentally, the second indication that Wall Street is warming to Planet Labs this week. On Monday, investment bank Citigroup also raised Planet Labs' price target -- to $5 a share.

Citi's rating was optimistic about the same thing I found optimistic in Planet Labs' recent earnings report. While third-quarter revenue growth at the satellite company was only so-so, profit margins perked up nicely. And Citi thinks Planet's sales growth will improve over the next four quarters as well.

Meanwhile, Morgan Stanley's note yesterday warns of "key known unknowns," specifically, whether the Elon Musk-run Department of Government Efficiency (DOGE) might make cuts to defense spending on (for example) Planet Labs photography services.

One big risk for Planet Labs stock

While light on specifics, this is in fact an issue Planet Labs investors should keep an eye on. On the one hand, yes, Planet Labs currently operates the world's biggest constellation of Earth observation satellites, producing images of great military interest to the Pentagon.

On the other hand, though, Elon Musk's own SpaceX may be getting into this same business via the defense side of the Starlink constellation, Starshield. In addition to providing communications capabilities, SpaceX has specifically expressed interest in using its satellites to provide Earth observation services.

The last thing Planet Labs needs right now is to find itself in competition with Elon Musk.

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Citigroup is an advertising partner of Motley Fool Money. Rich Smith has positions in Planet Labs Pbc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.