Morning Blast: Virgin Galactic Returns to Earth; Tesla's Downgrade; 3M's Massive Settlement

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Premarket action on Friday had the three major U.S. indexes trading lower. The Dow Jones industrials were down 0.35%, the S&P 500 down 0.52% and the Nasdaq 0.67% lower.

After announcing last week that it plans to resume space flights by the end of June, Virgin Galactic Holdings Inc. (NYSE: SPCE) stock jumped by almost 50% and closed Thursday with a gain of around 32%. That gain was pared by about 13% in Friday’s premarket, following the company’s announcement that it plans to issue $400 million in common stock through a distribution agency agreement with Credit Suisse, Morgan Stanley and Goldman Sachs.

According to the SEC filing, the banks are free to sell the shares in any legal manner they chose. Virgin Galactic also may sell the shares directly to one of its three agents at “a price agreed upon at the time of the sale.”

The proceeds from the stock sale will be used, in part, to develop Virgin Galactic’s spaceship fleet and infrastructure to enable the company to scale up its commercial operations.

Even given the natural inclination of existing shareholders to dislike having their stakes diluted when companies add more stock, the timing here seems less than propitious. The failure of the Titanic deepwater submarine on a commercial dive and the reported deaths of all five persons on board could have a chilling effect on space flights as well. There are significant risks involved with these high-cost adventures, and a customer’s ability to pay does not guarantee safety.

Shares of Tesla Inc. (NASDAQ: TSLA) added nearly 2% on Thursday, despite a downgrade from Morgan Stanley auto analyst Adam Jonas, a long-time Tesla bull. The bank cut its rating on the stock from Overweight to Equal Weight but raised its price target from $200 to $250. Barclays analyst Dan Levy made a similar rating cut on Wednesday, sending Tesla’s stock down by around 5%.

While Jonas believes that Tesla benefits from the current enthusiasm for AI, he and his team also believe “a re-rating on this theme is in the realm of the non-disprovable bull case.” A different way of saying that is that nobody knows anything. Jonas continued:

Autonomous driving and generative AI still remain, in our view, two very different technological disciplines. While the market may want to dream on the AI theme, we’d prepare to wake up to the sound of a blaring car horn.

Tesla stock traded down by about 0.8% in Friday’s premarket session at $262.55.

Shares of 3M Co. (NYSE: MMM) fell by about 1.5% on Thursday following a settlement with plaintiffs over 3M’s alleged dumping of “forever” chemicals. The $12.5 billion deal is certainly massive, but at least it brings the certainty of an end to hundreds of lawsuits related to the use of per- and poly-fluoroalkyl substances (PFAS) that 3M used in its firefighting foam and other products. The settlement will pay for cleaning up public water systems around the country. 3M’s stock traded up nearly 4% Friday morning.

Here is a look at how U.S. markets fared on Thursday.

Six of 11 market sectors closed lower on Thursday. Real estate (−1.44%) and energy (−1.30%) posted the day’s biggest losses. Consumer cyclicals (1.53%) and communications services (1.15%) had the day’s best gains. The Dow closed down 0.01%, while the S&P 500 closed up 0.37% and the Nasdaq up 0.95% on Thursday.

Two-year Treasuries added nine basis points to end Thursday at 4.77%, and 10-year notes added eight basis points to post a rate of 380%. In Friday’s premarket, two-year notes were trading at around 4.76% and 10-year notes at about 3.75%.

Bitcoin traded down slightly Friday morning but managed to sneak back above $30,000 and stay there for a few hours.

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