Rocket Lab stock soars after winning US government contract

Shares of Rocket Lab (RKLB) jumped in early trading on Friday after winning a US government contract that could be worth as much as $515 million. The space company will "design, manufacture, deliver, and operate 18 space vehicles" as part of the deal. Yahoo Finance Live take a closer look at the deal.

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Video Transcript

BRAD SMITH: Rocket Lab shares, they are taking off after the aerospace manufacturer entered a $515 million deal here with a US government customer to design and operate 18 space vehicles. Under the contract, Rocket Lab is going to deliver its space vehicles to the customer for a launch slated in 2027 and operate satellites through 2023 here. They said that work under the agreement is going to begin, and as we mentioned, slated for 2027. And then ultimately here, the incentives, the options, base amount of $489 million is what's, kind of, encapsulated within that $515 million, kind of, headline deal price here.

SEANA SMITH: Yeah, certainly, the Street seeing it as a catalyst here for shares in the short term. And also, obviously it makes sense for a longer term play as well. Citi is also very encouraged by this, the fact that they did win a $515 million US government contract. Citi making the argument that this more than doubles the backlog for its space systems business.

And we know we were just talking about Rocket Lab last week, the fact that it was able to successfully launch its first electron rocket. Since the failure that they did see in September, we saw a lot of excitement surrounding that initially. Once again to end the week, we're seeing some excitement in the shares on the heels of this government contract. Obviously, a huge win here for the company and what it could mean in some of those future deals that could be coming their way.

BRAD SMITH: I mean, the government contracts are massive, especially for any of the companies, whether publicly traded or privately held in the space, if you will. Look no further than SpaceX, which has been able to make sure that its business sees the necessary amount of revenues to be able to operate based on government contracts that it's been able to see. That's ultimately catapulted to a hectic corn type of valuation.

Mythical creatures will debate them later on. But at the end of the day, for SpaceX, for Rocket Labs, even for some of the other publicly traded entities, such as Lockheed Martin, they've all consistently had to rely on some of these major government contracts. Rocket Lab catching a bit here from one United States, at least division, government customer here.