Following through on Friday’s bullishness, and inspired by a near-5% jump in the price of crude oil, the bulls were firmly in charge right from the get-go on Monday. The S&P 500’s close at 1945.50 was 1.45% better than Friday’s last level, and leaves the index within striking distance of some major technical resistance.
Not every name participated in the rally effort, however. SYSCO Corporation (NYSE:SYY), Lumber Liquidators Holdings Inc (NYSE:LL) and Valeant Pharmaceuticals Intl Inc (NYSE:VRX) were destined for red ink from the start. Here’s why.
Valeant Pharmaceuticals Intl Inc (VRX)
Picking up where they left off on Friday, sellers hit Valeant Pharmaceuticals hard again on Monday, sending VRX shares lower by more than 10%.
There wasn’t any new news from or about the company. Rather, the market was still stressed over Friday’s news that Wells Fargo was so pessimistic on the pharmaceutical company that it felt the need to initiate coverage on VRX with an “Underperform” rating. Worse, Wells Fargo believes VRX stock is worth $65-$68 per share.
“Approximately 82% of Valeant’s total assets are made up of goodwill and intangibles. We calculate Valeant’s tangible assets, plus cash, as $6.7 billion as of September 30, 2015. When we subtract total debt, we arrive at a value of approximately ($24) billion.”
That degree of intangible value opens up the company, as well as VRX shareholders, to tremendous risk.
SYSCO Corporation (SYY)
Just when it looked like shares of food supplier SYSCO were going to break out, the decision to spend more than a few bucks on London-based food name Brakes Group was met with a little opposition from the market.
As of Friday’s close, SYY shares were up 26% from July’s low, making it one of the market’s better performers during that time. Indeed, the stock was up 15% from mid-January as of the end of last week, and was still heating up, largely fueled by a healthy serving of optimism from the media and its pundits.
The brakes were put on that rally today, however, after SYSCO announced it would be acquiring food distributor Brakes Group from UK-based Bain Capital for $3.1 billion. While it’s a good fit, SYY shareholders are less than thrilled with the $2.3 billion in debt the deal brings with it.
SYY ended the day down almost 5%.
Lumber Liquidators Holdings Inc (LL)
Last, but certainly not least, Lumber Liquidators Holdings got crushed today after the Center for Disease Control revised a previous report suggesting the risk of cancer posed by its flooring. As it turns out, the risk of cancer stemming from the formaldehyde found in its wood-flooring products was significantly greater than first suggested, sending LL lower by 20%.
Although still not the final/official results, the CDC notified the public late last week that it had used some incorrect values in the way it calculated the airborne concentration of formaldehyde in rooms where the company’s flooring was used. In simplest terms, the concentration of formaldehyde was three times greater than previously suggested, making the risk of cancer three times greater than the two-to-nine out of 100,000 individuals, as the CDC had previously calculated.
It’s a blow the already-struggling company may not be able to shrug off.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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