Why Alcoa Inc (AA), Illumina, Inc. (ILMN) and Seagate Technology PLC (STX) Are 3 of Today’s Worst Stocks

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Earnings season got off on a bearish foot Tuesday, with Alcoa Inc (NYSE:AA) setting a bearish tone, and with AA shareholders paying the brunt of the price. By the time the closing bell rang, the S&P 500 was at 2136.73, down 1.24%, and putting some serious pressure on key technical support levels.

Why Alcoa Inc (AA), Illumina, Inc. (ILMN) and Seagate Technology PLC (STX) Are 3 of Today's Worst StocksAlcoa was only one of the leaders of the bearish parade, however. Seagate Technology PLC (NASDAQ:STX) and Illumina, Inc. (NASDAQ:ILMN) were also deep in the red, terrifying investors into more indiscriminate selling.

Here’s what went wrong for each.

Alcoa Inc (AA)

If Alcoa’s earnings report truly is a harbinger of what to expect for an entire earnings season, the next few weeks could be miserable ones. The iconic aluminum company — and the first major to post its quarterly results — missed sales as well as earnings estimates, sending AA shares a whopping 11.5% lower as a result.

For the company’s fiscal third quarter ending in September, Alcoa earned 32 cents per share on $5.21 billion in revenue. The bottom line topped year-ago income of 6 cents per share of AA, but the top line fell from $5.57 billion. Either way, sales as well as profits fell short of the 33 cents per share analysts were expecting, and missed the revenue outlook of $5.33 billion.

The company’s guidance for the rest of 2016 wasn’t particularly compelling either, fanning the bearish flames that burned AA today.

Illumina, Inc. (ILMN)

As rough as things were for AA on Tuesday, the session was even more painful for owners of Illumina.

They weren’t the official Q3 results from the gene-sequencing outfit, but the preliminary results were alarming enough. The company warned ILMN shareholders after Monday’s close that it would only be reporting revenue of around $607 million for the recently completed quarter. That’s well short of the guidance of between $625 million and $630 million the company had previously suggested, even if it is 10% better than the top line from the third quarter a year earlier.

The news was enough to prompt a downgrade of ILMN by Janney. Analyst Paul Knight lowered the firm’s rating to a “Sell,” explaining:

“Illumina pre-announced again in 2016 with sequencing instruments sales down -26%. The company estimates third quarter revenue of approximately $607 million, $18-$23 million lower than expected (previous guidance $625-$630 million). Lack of visibility in whole genome sequencing sales and the continuing investment in diagnostics with Helix and Grail will constrain profitability. Our Fair Value of $125 is based on a 21x multiple of 2017 EBITDA per share $5.95. With diminishing revenue and operating visibility, we believe the multiple paid compared to historical (28x) and LS Peers (14x) will continue to converge.”

ILMN ended the day down 24.8%.

Seagate Technology PLC (STX)

Finally, although investors could have viewed the glass as half-full with disk drive maker Seagate Technology, they chose to see it as half-empty, spooked by the company’s rampantly rising expenses.

The computer memory market may be firming up, if Seagate’s preliminary Q1 report is any indication. The company said its revenue for the recently completed quarter would be closer to $2.8 billion than the previously suggested figure of $2.7 billion. And, gross margins would be closer to 29% than its prior guidance of 27%.

Despite the improved guidance and the subsequent upgrade of STX by Needham, the stock fell on an unexpected rise in operating expenses … mostly related to employee compensation. It ended the day off by 7.6%.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/why-alcoa-inc-aa-illumina-inc-ilmn-and-seagate-technology-plc-stx-are-3-of-todays-worst-stocks/.

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