A strong initial reading for Q3’s GDP growth rate was a bit of a mixed blessing, in that it indicates the growth we all have been waiting on, but also ups the odds of a rate hike before the end of this year. After having some time to think about it though, investors decided it was more of a liability than a blessing. The S&P 500‘s close of 2126.41 was 0.31% lower than Thursday’s closing level.
It was much, much worse for owners of Electronic Arts Inc. (NASDAQ:EA), Amgen, Inc. (NASDAQ:AMGN) and McKesson Corporation (NYSE:MCK), however.
Here’s what went wrong.
McKesson Corporation (MCK)
McKesson shares lost a jaw-dropping 22.7% of their value on Friday, and no, that wasn’t a misprint — MCK gave up nearly a quarter of its value in just one day following an earnings miss and a disappointing outlook that ultimately stems from the recent rise of societal/political outrage against soaring drug prices.
For the company’s recently completed fiscal Q2, pharmaceutical and medical supplier McKesson earned $2.94 per share on revenue of $50 billion. Analysts had been calling for a bottom line of $3.05 per share of MCK and sales of $51.2 billion.
Fanning the bearish flames that scorched MCK on the last day of the trading week was a full-year outlook that left the market wanting more. The company now anticipates earning between $12.35 and $12.85 per share for fiscal 2017 versus estimates of $13.59, with the bulk of that shortfall being the result of industry-wide pressure on, and scrutiny of, drug prices.
Peers and rivals AmerisourceBergen Corp. (NYSE:ABC) and Cardinal Health Inc (NYSE:CAH) fell in sympathy. CAH was off by 9.7% on Friday, and ABC stumbled 13%.
Amgen, Inc. (AMGN)
Biopharma giant Amgen also fell sharply on Friday, though not quite for the same reason MCK did. Amgen posted fiscal second-quarter numbers that topped estimates, but it’s not so clear if one of its budding flagship drugs is going to be able to maintain the pricing power many AMGN shareholders were hoping it would.
For the quarter ending a month ago, Amgen reported a profit of $3.02 per share on revenue of $5.81 billion. The figures topped the year-ago income of $2.72 per share and sales of $5.72 billion, but perhaps more important, topped estimates for a bottom line of $2.79 per share and top line of $5.74 billion.
It wasn’t all sunshine and roses with Thursday evening’s earnings report for AMGN, however. Within its official notification, the company also warned investors that it would be all but impossible to raise prices on its anti-inflammatory drug Enbrel any longer. In fact, its price may be pushed lower beginning next year. It’s a problem, as higher pricing for Enbrel has made up the lion’s share of its revenue growth thus far.
AMGN fell 9.6% on the news.
Electronic Arts Inc. (EA)
Last but not least, while the bulk of today’s misery was absorbed by drug stocks like AMGN, MCK and others, the healthcare industry was hardly the only sector hit hard today. Video game maker Electronic Arts struggled on Friday as well, with EA shares losing ground to the tune of 4%.
Unlike MCK and AMGN though, it wasn’t earnings and the ancillary information that generally comes with earnings that did the deed — Electronic Arts doesn’t report its previous quarter’s results until Tuesday of the coming week. Rather, it was a downgrade from Cowen that sent EA lower.
Cowen analyst Doug Creutz downgraded EA from “Outperform” to “Market perform” and simultaneously lowered its price target on the stock from $96 and $82. Creutz is concerned about the timing of the release for new game Titanfall 2 (which is out today), suggesting it comes too soon following the launch of Battlefield 1 and Call of Duty: Infinite Warfare.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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