Still unsure if interest rate hikes are impending or not (and still unsure if they would be a good thing or a bad thing), the bulls flinched on Wednesday after putting on a strong game face for the prior two sessions. When all was said and done, the S&P 500 ended the day at 2170.95, down 0.24%, and knocking on the door of a major technical support level.
Leading the bearish charge were H & R Block Inc (NYSE:HRB), Under Armour Inc (NYSE:UA) and Palo Alto Networks Inc (NYSE:PANW).
Here’s what went wrong for each.
Palo Alto Networks Inc (PANW)
Computer security company Palo Alto Networks may have done better than expected last quarter. But, the outlook it offered along with its fiscal fourth-quarter numbers left too many PANW investors unenthused, sending the stock down 7%.
For the recently completed quarter, Palo Alto earned 50 cents per share on revenue of $401 million. The profit figure met expectations for earnings of 50 cents per share of PANW, but the top line surpassed expectations of $390 million.
The picture isn’t as rosy looking forward, however. For the quarter already underway, Palo Alto Networks is anticipating revenues of around $399 million, with income projected to roll in between 51 cents and 53 cents per share. Analysts were forecasting sales of $403 million and an average profit of 56 cents per share of PANW.
The guidance prompted a handful of downgrades and lowered price targets.
Under Armour Inc (UA)
PANW wasn’t the only stock to get hit hard by a downgrade on Wednesday. Sports apparel outfit Under Armour was also rocked by a growing amount of pessimism.
Argus analyst John Staszak did the deed, downgrading UA from a “Hold” to a “Buy,” explaining:
“… while revenue is likely to remain strong, we think that further expansion will require substantial business investment, which will add debt and interest expense and weigh on earnings growth. In addition, Under Armour trades at a high current-year P/E, well above the average for apparel companies in our coverage group, and we see little room for further improvement.”
UA shares presently trade at 50.8 times their projected twelve-month income, even with today’s 4.6% drop from the stock.
H & R Block Inc (HRB)
Last but not least, tax preparation company H & R Block saw its stock plunge nearly 11% after posting fiscal Q1 numbers that didn’t live up to expectations. For the quarter in question, the company booked a loss of 55 cents per share of HRB, worse than the anticipated loss of 53 cents per share of HRB, and revenue of $125 million missed estimates for a top line of $133 million.
The key culprit in the miss may have been cost cuts and recapitalization that ultimately impeded the company’s ability to drive profits. During the quarter, the company cut costs by a total of only 0.6%, offsetting any benefit of the cuts by adding nearly $13 million in expenses stemming from new debt. It’s not clear to what degree, or even if, the spending cuts are helping, but H & R Block noted there were more, and bigger, cuts on the way.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
