KeyBanc Capital Markets pointed out in an email report on Monday that the recent sell-off in the space sector due to Space Exploration Technologies (SPCX.US) preparing for its IPO is "unnecessary," and the long-term growth prospects for the industry remain solid.

SpaceX (Elon Musk's rocket and satellite company) surged 20% on Monday, following a 19% increase on its first day of trading last Friday.

Space companies Rocket Lab (RKLB.US), Firefly Aerospace (FLY.US), and Intuitive Machines (LUNR.US) all experienced sharp declines last Friday. KeyBanc noted that the sector had significantly corrected in the weeks leading up to SpaceX's listing on NASDAQ.

KeyBanc analyst Michael Leshock stated that this sell-off is due to systemic factors, as funds need to make room for large space companies. He mentioned that the macro factors driving growth in the space sector over the past two years have further accelerated and are not dependent on whether SpaceX is a public company.

The report indicated that industry growth is supported by several factors, including a shortage of rocket supply that cannot meet the demand for launching spacecraft and satellites.

Leshock noted that the U.S. defense budget proposal for 2027 suggests allocating $56 billion for space systems, nearly doubling from 2026.

Leshock stated that the U.S. government is vigorously promoting space capabilities; U.S. competitors, including China and Russia, have demonstrated advanced orbital capabilities in recent years, prompting the U.S. to continue increasing related investments.

The report also mentioned other growth factors, including NASA's plans to establish a lunar base and a wave of industry consolidation.

KeyBanc upgraded the ratings of Rocket Lab and Firefly Aerospace from "sector perform" to "overweight," assigning target prices of $135 and $50, respectively.

Leshock stated that both companies have unique long-term growth potential.

Rocket Lab's stock rose 6.7% on Monday, up nearly 57% year-to-date. Firefly's stock increased by 4.7%, up 49% for the year.

The firm added that Rocket Lab has the capability to eventually establish its own satellite constellation, which is expected to generate high-margin, subscription-based revenue sources in the future.

Leshock mentioned that Rocket Lab is the second-largest company after SpaceX and may achieve a growth trajectory similar to that of SpaceX in the future.

Leshock indicated that Firefly is one of the major commercial space companies involved in NASA's lunar program-related business.

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