After three days of stagnation, investors finally started to digest the fact that stocks simply aren’t in a position to make forward progress right now.
So rather than leave their trades hanging in the wind, traders began to scale back on their exposure. The S&P 500 finished the session at 2018.94, down 0.58%.
For Valeant Pharmaceuticals Intl. Inc. (NYSE:VRX), Yahoo! Inc. (NASDAQ:YHOO) and VMware, Inc. (NYSE:VMW), though, it was considerably worse.
Here’s what went wrong for each.
VMware (VMW)
VMware investors who thought the 8% selloff from Oct. 12 — after Dell made a lackluster offer to buy VMware majority owner EMC Corporation (NYSE:EMC) — was as bad as things were going to get were sorely mistaken. As witnessed by Wednesday’s 20% drubbing, things would get much, much worse.
The beatdown of VMW shares this time around stems from the networking company’s third-quarter results. Revenue was up 10% while earnings per share of VMW were up 18% to $1.02, both of which topped estimates. But total bookings during the quarter only grew 3% vs. expectations of 11% growth.
That weak level of bookings prompted no less than 10 different analyst downgrades of VMW, though Raymond James’ Michael Turits may have summed up the challenges best by explaining:
“Regarding Virtustream, we’re concerned that doubling down with the intent to be a ‘top five’ provider in the highly competitive, capital-intensive and lower-margin cloud services business means a long term drag on profitability even if successful.”
Valeant Pharmaceuticals (VRX)
Valeant Pharmaceuticals shareholders are no stranger to sharp selloffs either, as the bears have put VRX in their crosshairs ever since the now-infamous Hillary Clinton tweet from Sept. 21.
But this time around it wasn’t threats of regulated drug pricing that did the deed. Rather, it was an unexpected accusation from known short-seller and naysayer Andrew Left of Citron Research, sending VRX shares lower to the tune of 17%.
Simply put, Left has accused Valeant Pharmaceuticals of sending fake invoices to a pharmaceutical distributor that, for all intents and purposes, it already owns as a means of inflating revenue figures.
Valeant Pharmaceuticals denies the complicated and convoluted claim, but worried VRX owners chose to play it safe rather than be sorry later, shedding the stock en masse until the truth could be ferreted out.
Yahoo! (YHOO)
Last, and least, Yahoo! shares got hit hard on Wednesday following a disappointing third-quarter earnings report unveiled on Tuesday afternoon followed by a bevy of finger-pointing and downgrades of YHOO Wednesday.
All told, Yahoo! earned 15 cents per share on sales of $1 billion last quarter, missing estimates for a profit of 17 cents per share of YHOO and a top line of $1.25 billion. Almost needless to say, investors are losing patience.
… not that analysts aren’t helping them to do so. Jeffries, J.P. Morgan, Credit Suisse, Raymond James and a whole slew of other research outfits all lowered their price targets on YHOO following the weak third-quarter results.
Last quarter’s results also drew out calls for CEO Marissa Mayer to step down, or be removed and, alarmingly, they made good sense.
One can’t help but wonder, however, if the reason YHOO fell 5% in the wake of earnings is because Mayer needs to go, or because she’ll likely stay at least a little while longer. A few too many investors are understandably fearing it’s the latter.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
