For the second day in a row, the fallout of the Brexit didn’t matter. The S&P 500 gained 1.70% on Wednesday, closing at 2070.77, and bringing the two-day rebound effort to an impressive 3.5%.
Not every stock was part of Wednesday’s rally, however. Alcoa Inc (NYSE:AA), Esperion Therapeutics Inc (NASDAQ:ESPR) and Southwestern Energy Company (NYSE:SWN) each finished the day suspiciously in the red.
Here’s what traders need to know.
Alcoa Inc (AA)
The initial response was a bullish one; Alcoa shares started the day up nearly 2% on the heels of the news. The longer investors had to think about it though, the more they concluded Alcoa as a whole or Alcoa split into two different companies wouldn’t change its net-debt.
For months now, Alcoa has made it clear it intends to break itself up into two entities. One side of the split would continue to supply basic aluminum, while the other would focus on specialty products. And there was never any misunderstanding that the legacy aluminum business was struggling.
What wasn’t clear to AA shareholders was how the company’s debt and pension obligations would be divvied up. Now it is. The two outfits will more or less evenly split $5.6 billion worth of pension obligations, while the fiscally stronger specialty business will take on the bulk of more than $8 billion in debt.
That seemed as it should be, initially, but by the time the closing bell rang, AA shareholders realized they’re still going to own at least one debt-laden company just by virtue of currently owning AA shares. The stock ended the day down more than 2%.
Esperion Therapeutics Inc (ESPR)
Esperion Therapeutics shareholders were given a large dose of bad news today, sending ESPR shares a jaw-dropping 40% lower.
The news: LDL cholesterol lowering drug ETC-1002 from Esperion shows promise; not even the Federal Drug Administration would deny that. What the FDA was willing to deny after Tuesday’s close, however, was Esperion Therapeutics’ request to accelerate the phase 3 trial of ETC-1002 by initially skipping consideration of the cardiovascular result and focusing solely on the drug’s ability to lower so-called “bad cholesterol.” The agency wasn’t inspired, however, informing ESPR that it should conduct both trials simultaneously, (probably) pushing any approval back to 2019.
Even so, the FDA’s stance on the matter doesn’t appear to be etched in stone. On the other hand, it was solid enough to spook ESPR owners on Wednesday.
Southwestern Energy Company (SWN)
Last but not least, while most energy and commodity stocks were up today in step with the 3% rally in the price of crude oil, the rally didn’t include every single stock in the sector. SWN proved to be an outlier, giving up more than 6% of its value on Wednesday.
The prompt for the selloff? SWN shareholders know the debt-burdened company was planning to sell stock as means of paying off loans as well as buying back convertible debt. Indeed, shares have been somewhat lifted by the prospect. What threw them for a loop was a last-minute decision to offer far more shares — about 15% more — than originally planned.
Although the quelling of debt obligations always has an upside, with nearly 100 million new shares poised for injection into 344-million-share float, dilution just became an even bigger concern.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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