After a decade of near-zero interest rates, investors no longer need to look far when hunting for yield. And bonds aren’t the only game in town.
John Rekenthaler, director of research for Morningstar Research Services, points out that investors have piled into intermediate- and long-term bond funds despite their feeble returns.
“Intermediate-term funds are in the red over the trailing one-, two-, and three-year periods, and are barely positive for the year to date,” he said in a note. “Long funds have fared even worse, being down in 2023 as well.”
That raises the question: What is better than bonds, and where else can investors find robust returns?
“We’ve moved from an environment where income and yield was scarce, to now where it’s far more bountiful, and therefore investors don’t have to make a lot of risky choices to capture income,” said Michael Arone, chief investment strategist at
Global Advisors.
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High on the shopping list: preferred stocks, which combine elements of stocks and bonds in one investment.
“Preferreds continue to be an attractive space for investors who are trying to toe the line between bondlike features, which is stable, fixed dividend payments, and equity-like appreciation,” he said. “Preferreds do a good job of balancing those two items.”
Treasury bills are still paying above 5%, but with a preferred stock, investors get an investment-grade security that yields 6.5%—so solid income—without taking on too much credit risk, said Arone. “To us, that’s a very attractive proposition in today’s market.”
State Street’s offering is the exchange-traded fund
SPDR ICE Preferred Securities ETF
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(ticker: PSK), which yields 6.56%.
Short-term T-bills are still attractive—the key is to hold the bills to maturity, rather than trying to bet on the direction of rates over the long term. The
SPDR Bloomberg 1-3 Month T-Bill ETF
(BIL) yields 4.1%.
ETFs that focus on dividend-paying stocks offer another avenue for income. Here investors can look for ETFs that invest in so-called dividend aristocrats, or companies in the
index that have a history of increasing dividends for 25 consecutive years or more.
Among the ETFs that invest in such stocks is
ProShares S&P 500 Dividend Aristocrats ETF
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(NOBL), an $11.65 billion fund that tracks the S&P 500 Dividend Aristocrat Index. The yield is 1.95% and year to date total return is 4.43%.
The yield on dividend stocks may not appear compelling at first blush, but there’s a long-term reason to consider adding them to your portfolio. “This is stock investing, not bonds, and therefore you get the opportunity for price appreciation,” Arone said. “And companies that exhibit these characteristics reward investors over the long term with outsize returns or better returns than bonds.”
Investors who are expecting a slowdown in the economy and a possible recession should have high-quality companies in their stock portfolio and dividend growers tend to be those high-quality companies, he added.
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This year investors have flocked to money-market funds—mutual funds that invest in cash and low-risk securities. One advantage of these cash-like instruments is that it is easy to move money into them from mainstream brokerage accounts.
Keep an eye on fees when shopping around. The popular Fidelity Money Market Fund (SPRXX), with a yield of 5.04%, has an expense ratio of 0.42%, while the Vanguard Federal Money Market Fund (VMFXX), yielding 5.27%, only charges 0.11%.
One caveat: Arone said investors should understand the liquidity, interest-rate risk, credit risk, and potential volatility associated with money-market funds. “Historically when investors have gotten themselves in trouble is when the yields are really juicy and attractive.,” he cautioned.
Write to Lauren Foster at lauren.foster@barrons.com
China’s weak economic recovery from three years of Covid restrictions, a crackdown on the private sector and an ailing property market underscores that the world’s second largest economy is entering a period of slower growth. That will create ripples around the world, especially for the multinational companies that rely on China as a major source of growth.
The country is already a source of angst for global companies.
‘s (AAPL) shares slid 3% on Thursday amid a report in The Wall Street Journal that China banned the use of iPhones by government officials at work as it engages in a technology battle with the U.S. and tries to reduce reliance on foreign technology.
The changing U.S.-China relationship comes as China’s economy falters and efforts to stabilize it have so far underwhelmed investors. Chinese policy makers are reluctant to use debt-fueled stimulus to revive its ailing property market. Chinese leader Xi Jinping has spent years trying to deflate a property bubble and rein in risks within shadow banking.
Though Beijing has taken some steps to relax payment restrictions and lower deposit rates nationally to woo home buyers, economists don’t see a return to a property boom. Instead, they see property, which accounted for a quarter of economic activity, to take up a smaller share over time.
More stimulus is likely to try to abate flagging confidence among companies, investors, and consumers, analysts say. Still, economists see slower growth. JPMorgan’s economists lowered their outlook for 2023 growth to 4.8%, down from 5%, and just 4.2% next year, down from its earlier projection of 4.7%. That slower growth will most directly impact neighboring emerging markets in Asia, with a one-percentage point Chinese GDP shock contributing to a 0.6% point hit to the rest of the region, according to JPMorgan.
It also creates challenges for global companies that have relied on China as an engine of growth, including commodity producers in Latin America and Australia. A Chinese property boom that fuels demand for metals like copper and steel now seems unlikely. Global automakers, industrial companies and consumer giants are also seeing weaker demand as Chinese consumers and businesses remain skittish about spending and competition from local players intensifies.
Orders for heavy machinery are slowing.
(ticker: CAT) noted that Chinese demand was worse last quarter than its already lowered projections. Geopolitical tensions with the U.S. are also pushing Chinese companies to reduce their reliance on foreign suppliers, a potential challenge for global industrial companies.
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Exporting rivals of China are also vulnerable as the yuan continues to weaken, now near 15-year lows versus the dollar. Economists expect China to let the yuan weaken further, albeit in a gradual and measured way, to help the competitiveness of its own exporters.
Instead of driving global growth by scooping up commodities, capital goods and consumer products, China’s shift toward slower growth could pose a challenge for foreign companies. A weaker yen will make Chinese companies more competitive in a host of areas, from technology to aerospace.
“This is the first time ever that a low-income country can produce tech at such a high level,” says Rory Green, head of China and Asia research for TS Lombard, noting China’s ability to produce seven nanometer chips and airplanes.
Barron’s looked for large multinational companies in the Stoxx 600 and
that broke out the share of revenue that came from China to find those that could get hurt by China’s weaker economy. Semiconductor-related companies like
(QCOM) dominate the list of companies with the most sales in China. But since the chips often go into products sold elsewhere, we excluded those and focused on other companies with more than 20% of sales from China.
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It isn’t an exhaustive list since some companies don’t break out China revenue and only offer revenue from Asia. But this offers a starting point for investors monitoring companies that could come under further pressure, especially if Beijing is unable to stimulate the economy enough to revive confidence.
Commodity producers, especially those making materials for property construction, could see slower demand.
(RIO) topped the list, with roughly half its revenue coming from China.
(AAL. London) and Chilean copper producer
(ANFGF) are getting a quarter and a fifth of sales from the country, respectively.
Industrial companies like
(MTD), which makes precision instruments and services, warned that Chinese demand has “deteriorated sharply” and that it sees lower sales for the remainder of the year.
Affected consumer-oriented companies include luxury makers like
(SWGAF) and
(CFRUY). If Chinese consumer confidence continues to take a hit, especially among higher-income households, trusts or wealth management products could come under duress.
German automakers like
and
are also vulnerable, not just from consumers wary of spending on big-ticket items but also as Chinese rivals like electric car maker
(BYD) gain share and pushes into Europe. A weaker yuan gives local rivals an additional competitive boost.
Write to Reshma Kapadia at reshma.kapadia@barrons.com
The capitulation of bearish investors seems to be a popular trend on Wall Street.
After months of unexpectedly strong stock market performance, more big-name investors have shuttered bearish bets or changed their dour tune—even as the stock market has begun to edge lower.
June and July short-covering was the largest over a two-month period in the past seven years among Goldman Sachs’ hedge fund clients, according to The Wall Street Journal.
Morgan Stanley strategist Mike Wilson, who has been sharply criticized for his negative views on the market, recently turned less bearish.
Carl Icahn, the activist investor, has decided that he, too, has wagered enough against the stock market advance. In a letter sent earlier this month to
(ticker: IEP) investors, he pledged to focus less on hedging stocks to express bearish views and more on what he is known for.
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“Activism is the best investment paradigm,” he wrote.
The market mob might delight in the difficulties of well-known investors. But schadenfreude is the wrong reaction—especially for those who, mostly through luck, were properly positioned for the 2023 rally.
Capitulation at the market’s highest levels is coinciding with a subtle shift in the market narrative: Many investors are increasingly fretting that corporate earnings are slowing, which should bode ill for stocks.
Oppenheimer strategist John Stoltzfus recently told clients that
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companies’ earnings seem weaker than expected for the second quarter thus far. He noted that earnings are down 7.8%, compared with an expected 6.4% decline.
Anyone who misses the significance of that surely understands this: Fitch recently downgraded the U.S. debt rating. Moody’s downgraded 10 regional banks and put others on notice that the same may happen to them. And 10-year Treasury yields have recently been above 4%, a level that has historically been bad for technology stocks, which have led the market higher this year. That’s because the discounted-cash-flow models used to value stocks are adversely impacted by higher interest rates.
Add to that the percolating financing troubles in the real estate sector and uncertainty about the odds of a recession, and you have the recipe for financial indigestion.
If you agree that the market narrative is changing—and you think it is premature that bearskin rugs are suddenly in vogue—consider protecting some of the extraordinary gains of 2023.
Hedging expenses remain reasonable. The
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or VIX, remains below its long-term average of 19. Michael Schwartz, Oppenheimer’s chief market strategist, has told clients to buy three S&P 500 November $4450 put options to hedge a $1 million portfolio. If the market falls 10%, he says the hedge would offset about 95% of any losses. (Puts give holders the right to sell a specified asset at a set price within a set period.)
Most bullish investors wait to hedge, or lock in profits, until they panic. The end of summer will bring many events that could prompt investors to sell stocks. The November expiration covers many key events that include the September and October trading months, which have historically delivered major market declines, several meetings of the Federal Reserve’s rate-setting committee, and loads of key economic data that will be parsed for clues on inflation.
If stocks rally into the fall, money spent hedging will be lost. Should that happen, of course, you can capitulate.
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Steven M. Sears is the president and chief operating officer of Options Solutions, a specialized asset-management firm. Neither he nor the firm has a position in the options or underlying securities mentioned in this column.
Email: editors@barrons.com
Big-time landlords have begun surrendering office buildings and other struggling properties to lenders this year, when just a few years ago they were fetching sky-high values amid super-low rates.
Many consider it the start of a reckoning for the estimated $20.7 trillion commercial real-estate market, likely its biggest test of confidence since the 2007-2008 global financial crisis.
Brian Lane, the Well Fargo Investment Institute’s lead analyst for private credit, pointed to a $1 trillion “wall of worry” as a wave of commercial real-estate loans come due through the end of 2024 (see chart), in a Monday client note. The balance balloons to about $2.5 trillion through the end of 2027.
“Property owners are facing higher vacancy, reduced net operating income, falling prices and rising capitalization rates,” Lane wrote. “While valuations have started to decline in most property types, there is likely more downside.”
A recent McKinsey report pegged prices for office buildings as likely to fall as much as 42%,
Morgan Stanley analysts reiterated a call for overall commercial-property prices to drop 27.4% peak-to-trough through the end of 2024.
Lane expects many borrowers to resort to private-capital providers for loans, with banks and the commercial mortgage-backed securities market pulling back.
“We expect that private investors will be needed to provide debt financing, and that sponsors may be forced to infuse equity to protect holdings and right-size property deals.”
Furthermore, institutional investors in bonds haven’t given up on all commercial real estate.
Saira Malik, Nuveen’s chief investment officer, said that “nonoffice” commercial mortgage-backed securities that currently offer 10.6% yields look attractive relative to the roughly 5.5% yield on investment-grade corporate bonds and 3.87% 10-year Treasury yield
TMUBMUSD10Y
,
in a Monday client note.
Despite regional-bank failures and ongoing challenges in the office sector, Malik pointed to climbing delinquency rates of about 2% on loans in bond deals as well below the 9% rate of the global financial crisis some 15 years ago.
She also said investors might consider commercial real estate for its higher yields and total returns, given a backdrop where the Federal Reserve is expected to soon end its most aggressive cycle of rate hikes in decades.
Read: Do Not Disturb: Tenants brace for more office landlords to go belly up on their property debts
Stocks rose on Monday, with the Dow Jones Industrial Average
DJIA
up for its 11th straight session, ending at its highest level since February 2022, according to FactSet. The S&P 500 index
SPX
closed 5% below its record close on Jan. 3, 2022.
The U.S. economy isn’t the only thing unwilling to capitulate despite sharply higher interest rates.
Commercial real-estate prices have been heading lower in the wake of the pandemic and the Federal Reserve’s inflation fight, but the bulk of the pain still looks poised to come, according to Morgan Stanley analysts.
Prices for apartment buildings, offices properties and retail centers were pegged at about 8%-14% lower in May from peak levels (see chart), or less than Morgan Stanley’s initial estimates (blue line).
But the worst for property owners looks yet to come, according to Morgan Stanley’s REIT research team led by Ronald Kamden. The team reiterated its call for a 27.4% peak-to-trough price drop for all commercial property types through the end of 2024.
That compares with a 34.9% drop roughly 15 years ago during the global financial crisis, but also a subsequent period in which prices rose nearly 150% through the pandemic, according to Morgan Stanley data.
Prices have been heading lower overall, but with retail, industrial and office properties in the suburbs and central business districts, still facing the majority of their anticipated price declines “as transaction activity and distressed sales rise,” the team wrote in a Monday client note.
Up to 42% price drop?
Half-empty office buildings in the heart of financial districts in major U.S. cities are expected to be hit particularly hard by hybrid work, tighter credit and higher interest rates.
See: San Francisco’s office market erases all gains since 2017 as prices sag nationally: chart
New York magazine recently wrote how big Manhattan office landlords are looking to shed buildings now worth less.
The hardest-hit cities could see demand for office buildings tumbling by as much as 38% from 2019 levels, according to a McKinsey Global Institute report from earlier in June. The report also pegged office prices as falling about 26% on average in a moderate scenario through 2023, but skidding 42% in a severe scenario.
BofA Global researchers led by Alan Todd also said that pressure in the office sector could “spill over” into other property types, including hotels and retail, by making refinancing more difficult.
“For example, to the extent airline costs remain elevated, flight cancellations remain a common problem, or corporate belt tightening limits fly-to in person meetings, we see it as a headwind for hotel revenues, which can fluctuate significantly with the public’s ability or willingness to travel,” Todd’s team wrote, in a weekly client note.
The Dow Jones Equity REIT index
DJDBK
was up 3.1% on the year through Monday, according to FactSet. Stocks have punched higher in 2023 in the wake of a resilient U.S. economy, despite the Fed already having raised rates by about 500 basis points to a range of 5%-5.25%.
Fed officials indicated that two more rate hikes could still be in store this year, likely with another 25 basis point rate increase expected later this month. The S&P 500 index
SPX
was up about 17.8% on the year through Monday, while the Dow Jones Industrial Average
DJIA
was 4.3% higher and the Nasdaq Composite Index
COMP
was up 36%, according to FactSet.
Related (February): Losing the trophy? A $45 billion mortgage bill is coming due for some of America’s signature commercial properties
Read next: Do Not Disturb: Tenants brace for more office landlords to go belly up on their property debts
Virgin Galactic’s first commercial spaceflight launched successfully on Thursday, taking a crew from the Italian Air Force and the National Research Council of Italy on a 75-minute trip to the edge of space.
The flight, dubbed Galactic 01, marks the start of commercial service for the space tourism pioneer after a series of delays.
Shares (ticker: SPCE) fell sharply on the news, declining roughly 13% to $4.13, after trading higher earlier in the day. The stock market often “buys the rumor and sells the news.” That’s what happened during the company’s last high-profile launch.
For comparison, the
and
were both higher in midday trading.
A double-hulled mother ship took the Galactic spacecraft to 44,500 feet before dropping it, according to a company press release. The craft, called Unity, then lighted its engine and accelerated to about Mach 2.88, or almost three times the speed of sound, traveling about 52.9 miles above the surface of the Earth. After passengers experienced weightlessness, the ship glided back to Spaceport America in New Mexico.
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It was an exciting event and investors were optimistic. A live stream of the flight went live at around 11 a.m. Eastern time.
Prior to the flight, shares had gained $1.28, or 37%, over the past month, as of the market close on Wednesday. A similar pattern emerged when Virgin Galactic founder Richard Branson went to the edge of space almost two years ago in July 2021.
Virgin Galactic shares rose 40%, from about $35 to $45 a share, the month headed into the flight, but that gain didn’t last. The stock closed below $35 just three days after the flight, the latest bit of evidence that the stock market is forward-looking and that good news can be reflected in prices ahead of an expected event.
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Virgin Galactic stock has declined around 90% since Branson flew. A series of regulatory and equipment-related delays pushed out the start of commercial service much further than expected. And higher interest rates, which make funding start-up companies more expensive, have sapped investors’ enthusiasm.
In the long run, earnings and cash flow will determine how Virgin Galactic stock trades. In the short run, investors should watch out for a stock dip, even with a successful first flight.
With the start of service, Wall Street projects about $12 million in 2023 revenue for the company. Positive earnings and free cash flow aren’t projected until the end of the decade when annual sales reach roughly $700 million. Analysts also project Virgin Galactic will spend roughly $1 billion between now and the end of the decade before the business becomes self-sustaining.
Write to Emily Dattilo at emily.dattilo@dowjones.com and Al Root at allen.root@dowjones.com
Published: June 29, 2023 at 7:57 a.m. ET
Virgin Galactic Holdings Inc.’s stock rose 3.4% in premarket trades as the company was making its preparations for its first commercial spaceflight Thursday.
The Galactic 01 mission will be for scientific purposes, and will carry three crew members from Italy’s air force and the National Research Council of Italy looking to conduct research on microgravity. Virgin Galactic’s SPCE livestream of the launch from Spaceport America in New Mexico begins at 11 am ET.
“We…
Virgin Galactic Holdings Inc.’s stock rose 3.4% in premarket trades as the company was making its preparations for its first commercial spaceflight Thursday.
The Galactic 01 mission will be for scientific purposes, and will carry three crew members from Italy’s air force and the National Research Council of Italy looking to conduct research on microgravity. Virgin Galactic’s
SPCE
livestream of the launch from Spaceport America in New Mexico begins at 11 am ET.
“We are wired to wonder,” tweeted Virgin Galactic on Wednesday. “And when we open access to space to more people like researchers and scientists from @ItalianAirForce & @CNRsocial_, we have the power to unlock our potential here on Earth.”
Related: Virgin Galactic could open up space to ‘everyday people’ says former NASA astronaut
“Buona fortuna Virgin Galactic e Aeronautica Militare! Wishing the crew of @VirginGalactic’s upcoming Galactic 01 space mission the best of luck – from the #VirginFamily in Italy and beyond,” tweeted Virgin Galactic founder Sir Richard Branson on Tuesday.
The private spaceflight company’s stock ended Wednesday’s session up 9.2%, its biggest single-day percentage gain since June 20, 2023, when it gained 27.1%.
Related: Virgin Galactic stock climbs more than 6% as company targets Thursday for first commercial flight
The cost of a trip to space with Virgin Galactic was $450,000. Demand has been brisk — Virgin Galactic says that it has around 800 “future astronauts” signed up.
Last month Virgin Galactic completed its Unity 25 spaceflight. That flight — its fifth overall — was the first crewed mission in nearly two years.
However, Virgin Galactic reported a bigger-than-expected loss in its most recent quarter. Branson’s satellite-launch company, Virgin Orbit Holdings Inc.
VORBQ
,
has filed for Chapter 11 bankruptcy protection.
In a filing last Thursday the company said it’s seeking to raise $400 million to develop its spaceship fleet and infrastructure and scale its commercial operations.
Virgin Galactic’s stock is up 36.2% in 2023, outpacing the S&P 500 index’s
SPX
14% gain.
Additional reporting by Claudia Assis.
Published: June 28, 2023 at 7:44 a.m. ET
Virgin Galactic Holdings Inc.’s stock rose 2.1% in premarket trades Wednesday on the eve of the company’s first commercial spaceflight.
Shares of the private spaceflight company ended Tuesday’s session up 4.8%, snapping a four-day losing streak. The stock is up 24.7% this year, outpacing the S&P 500 index’s SPX 14% gain.
On Monday Virgin Galactic…
Virgin Galactic Holdings Inc.’s stock rose 2.1% in premarket trades Wednesday on the eve of the company’s first commercial spaceflight.
Shares of the private spaceflight company ended Tuesday’s session up 4.8%, snapping a four-day losing streak. The stock is up 24.7% this year, outpacing the S&P 500 index’s
SPX
14% gain.
On Monday Virgin Galactic
SPCE
announced that it is targeting Thursday for the Galactic 01 mission. Galactic 01’s journey will be for scientific purposes, and will carry three crew members from Italy’s air force and the National Research Council of Italy looking to conduct research on microgravity.
Related: Virgin Galactic stock climbs more than 6% as company targets Thursday for first commercial flight
“Virgin Galactic’s unique spaceflight system is opening up a world of possibilities for scientists and researchers,” the company tweeted Tuesday.
“Buona fortuna Virgin Galactic e Aeronautica Militare! Wishing the crew of @VirginGalactic’s upcoming Galactic 01 space mission the best of luck – from the #VirginFamily in Italy and beyond,” tweeted Virgin Galactic founder Sir Richard Branson on Tuesday.
Virgin is planning its second commercial flight — Galactic 02, geared toward what it called “private astronauts” — for launch in early August, with monthly flights to follow.
Related: Virgin Galactic’s VSS Unity makes fully crewed return to space
Last month Virgin Galactic completed its Unity 25 spaceflight. That flight — its fifth overall — was the first crewed mission in nearly two years.
In a filing last Thursday the company said it’s seeking to raise $400 million to develop its spaceship fleet and infrastructure and scale its commercial operations.
However, Virgin Galactic reported a bigger-than-expected loss in its most recent quarter. And Branson’s satellite-launch company, Virgin Orbit Holdings Inc.
Published: June 21, 2023 at 7:39 a.m. ET
Virgin Galactic Holdings Inc.’s stock continued its rally in premarket trades Wednesday, rising 0.2% after soaring during Tuesday’s session.
The spaceflight company’s stock ended Tuesday’s session up 27.1%, marking its largest percent increase since Feb. 15, 2022, when shares rose 31.94%, according to Dow Jones market data. The stock ended Tuesday’s session at $6.01, its highest close since Feb. 28, 2023, when it closed at $5.74.
Virgin…
Virgin Galactic Holdings Inc.’s stock continued its rally in premarket trades Wednesday, rising 0.2% after soaring during Tuesday’s session.
The spaceflight company’s stock ended Tuesday’s session up 27.1%, marking its largest percent increase since Feb. 15, 2022, when shares rose 31.94%, according to Dow Jones market data. The stock ended Tuesday’s session at $6.01, its highest close since Feb. 28, 2023, when it closed at $5.74.
Virgin Galactic’s
SPCE
plan for its first commercial flight later this month has boosted the company’s stock, which has risen 36.6% in the last five days, outpacing the S&P 500 index’s
SPX
gain of 1.2% over the same period.
Related: Virgin Galactic’s stock continues rally, boosted by plans for first commercial flight
The commercial flight, Galactic 01, will be a paid scientific-research flight with the Italian air force. TD Cowen analyst Oliver Chen described the first commercial flight as an “out of this world innovation” in a note last month.
The flight window for Galactic 01 is June 27 to June 30, according to Virgin Galactic. A second commercial flight, Galactic 02, will follow in early August. The company expects that monthly commercial spaceflights will take place after the Galactic 02 mission.
“@VirginGalactic announces the start of commercial spaceflight service with #Galactic01 flight this month,” tweeted Virgin Galactic founder Sir Richard Branson last week. “A huge well done to the team, so excited for our astronauts to inspire more people to look to the stars.”
Related: Virgin Galactic shares rocket higher on plans for first commercial flight this month
Last month Virgin Galactic’s VSS Unity spacecraft made its fully crewed return to space, the company’s first crewed mission in almost two years.
The Unity 25 mission, which was crewed by two pilots and four Virgin Galactic mission specialists, marked an important milestone for the company. It was Virgin Galactic’s first fully crewed spaceflight since July 2021, when VSS Unity carried founder Richard Branson and three company employees to space.
Last month Virgin Galactic reported a deeper-than-expected first-quarter loss and revenue that missed analysts’ estimates.
Related: Virgin Galactic’s VSS Unity makes fully crewed return to space
Virgin Galactic’s stock had been pressured by the struggles of Branson’s satellite-launch company, Virgin Orbit Holdings Inc.
VORWQ
,
which filed for bankruptcy protection earlier this year and is now winding down operations and selling its assets.
Full ramp of Virgin Galactic commercial operations still ‘years away': analyst
Published: June 30, 2023 at 10:14 a.m. ET
Virgin Galactic Holdings Inc.’s first commercial flight was an important milestone for the company, but a full ramp of its operations remains “years away,” according to KeyBanc Capital Markets.
Thursday’s Galactic 01 mission transported three crew members from the Italian air force and the National Research Council of Italy into space to conduct research on microgravity.
“Commencement…
Virgin Galactic Holdings Inc.’s first commercial flight was an important milestone for the company, but a full ramp of its operations remains “years away,” according to KeyBanc Capital Markets.
Thursday’s Galactic 01 mission transported three crew members from the Italian air force and the National Research Council of Italy into space to conduct research on microgravity.
“Commencement of commercial operations has been a long-awaited milestone for SPCE, and this flight was a critical step as the Company moves closer to ramping commercial service,” wrote KeyBanc Capital Markets analyst Philip Gibbs, in a note Thursday. “SPCE’s next commercial flight, Galactic 02 (private astronaut flight), is planned for early August, and it plans to establish a monthly flight cadence thereafter.”
Related: Virgin Galactic makes first commercial spaceflight, transporting Italian researchers into space
“We believe investors could view the successful flight as a ‘sell the news’ event, as a full ramp of its commercial operations via its next-generation Delta class fleet (under development) remains years away,” Gibbs added.
Virgin Galactic’s stock
SPCE
ended Thursday’s session down 10.8%, ending a two-day winning streak in the build-up to the landmark launch. The stock is down 1% Friday and has fallen 3.5% in the last five days, compared with the S&P 500 index’s
SPX
2.1% gain.
“We believe establishing a monthly flight cadence beginning in August will be critical for SPCE to display the consistency and practicality of its operations, which would make SPCE a more attractive investment should it seek to raise capital in the future (we estimate $100M-$600M needed over the next 2-3 years),” wrote Gibbs, in the note.
Related: Virgin Galactic could open up space to ‘everyday people’ says former NASA astronaut
“The stock’s weakness could also be a product of SPCE issuing shares via its newly established at-the-market program given the timing of establishing the program and the opportunity to take advantage of above average trading volume and positive news flow, though it is unknown if this is occurring,” wrote Gibbs.
In a filing last Thursday the company said it’s seeking to raise $400 million to develop its spaceship fleet and infrastructure and scale its commercial operations.
Virgin Galactic reported a bigger-than-expected loss in its most recent quarter.
Additional reporting by Claudia Assis.
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