More indecision on Tuesday, with the market’s key indices waffling between key technical support and resistance. Not even surprisingly strong factory orders for February could get traders off the fence. When all was said and done, the S&P 500 ended the day at 2,360.16, up a mere 0.06%.
Not every stock escaped a setback on Tuesday, however. Shares of Kate Spade & Co (NYSE:KATE), L Brands Inc (NYSE:LB) and Nvidia Corporation (NASDAQ:NVDA) all ended the day deep underwater, with two of the three falling victim to downgrades.
Nvidia Corporation (NVDA)
Blame Pacific Crest for the 7% setback Nvidia shares suffered today. Analyst Michael McConnell started the day with his guns ablazin’, so to speak, and took dead aim at NVDA.
In short, McConnell is concerned about saturation within the graphics processing market, limiting growth in the foreseeable future. His concern was significant enough to spark a downgrade of NVDA stock, to “Underweight.” He noted:
“Desktop graphics card manufacturers are noting material demand deceleration in sell-through since February, with unit sales to China declining 30% to 40% q/q and to the United States declining 20% q/q in CQ1. GPU orders to NVIDIA are unlikely to meaningfully resume until July given high channel inventory of three months.”
Rival Advanced Micro Devices, Inc. (NASDAQ:AMD) also saw its stock fall 3.3% on Tuesday, as investors extrapolated McConnell’s concern.
L Brands Inc (LB)
NVDA wasn’t the only stock to get hit hard by a downgrade on Tuesday. L Brands — the company that owns Victoria’s Secret and Bath & Body Works — was on the receiving end of a downgrade from Citigroup.
Analyst Paul Lejuez downgraded LB from a “Buy” to “Neutral” on Tuesday mostly on concern that the company is operating more stores than it actually needs to meet demand. Lejuez also noted that mall traffic continues to deteriorate, stiffening the headwind that L Brands and its peers were already fighting.
LB ended the day down 4.4%.
Kate Spade & Co (KATE)
Last but not least, shares of handbag and accessory name Kate Spade tanked to the tune of 14.6% after reporting it would need more time to mull a takeover offer from Coach Inc (NYSE:COH).
The same bug that’s bitten retailers like Macy’s Inc (NYSE:M) and Kohl’s Corporation (NYSE:KSS) has been just as unkind to apparel companies like Coach and Kate Spade, so much so that it’s forcing mergers and acquisitions just to let these companies survive. The paring of Coach and Kate Spade was largely regarded as a foregone conclusion, but per today’s news, the proposed buyee is balking.
The delay could be interpreted as a good thing in some cases, suggesting the target is entertaining other — and likely better — options. In this case though, the postponement is regarded as trouble. As Nomura Instinet analyst Simeon Siegel put it, “If they had gotten the bid they wanted, they wouldn’t be asking for more time.” A deal will only likely be done at a price less than Monday’s closing price.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
