Although the professional consensus was that it wouldn’t sway the Federal Reserve much from its aim to hold interest rates steady for the foreseeable future, today’s initial reaction to May’s firm inflation numbers said the market thinks a rate hike could come sooner than later. By the time the closing bell rang though, those early losses were wiped away, and turned into a 0.31% gain. The S&P 500 closed at 2077.99.
While the market mustered a modest rebound, owners of American Airlines Group Inc (NASDAQ:AAL), BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) and Cavium Inc (NASDAQ:CAVM) weren’t so lucky. These three stocks were among the worst of the worst.
Here’s a closer look at why none of them could buy a friend on Thursday.
American Airlines Group Inc (AAL)
Already down 8% since this weekend’s mass shooting at a gay club in Orlando, Florida, Bank of America/Merrill Lynch fanned the bearish flames for American Airlines Group today by downgrading AAL from “Neutral” to “Sell.” However, the downgrade of AAL didn’t stem from the likely quelling of travel plans in the shadow of rekindled terrorism fear. Rather, analyst Andrew Didora is concerned about the airline’s soaring debt.
That said, Didora did acknowledge the potential impact the terrorist attack may have, as well as the volatility that a “Brexit” could create.
Bank of America/Merrill Lynch also lowered its price target on AAL, from $42 to $27, with today’s 4% dip bringing it one step closer to that mark.
BioMarin Pharmaceutical Inc. (BMRN)
Some say it’s an overreaction. Others disagree with that assessment. Whichever it is, it doesn’t change the fact that BioMarin Pharmaceutical fell nearly 4% on Thursday following reports that the company had suspended recruitment for a trial of its hemophilia drug BMN 270.
There was no official statement on the matter from the company; one may or may not come at a later time. Rather, interested parties simply noticed at website www.clinicaltrials.gov that the study was being suspended. More often than not though, such a suspension is a sign that a trial had encountered unexpected problems, or failed to produce the hoped-for results. In fact, BMRN had already suggested at one point there may be some safety issues with BMN 270.
That’s the point Evercore ISI analyst Mark Schoenebaum made today, explaining after he actually spoke with company representatives:
“We spoke with the company, who confirmed that today’s news on clinicaltrials.gov is not new and that the posting of this update to the website just took a few weeks. Recall, BioMarin has said that they will need to speak with EU regulators prior to dosing the last 3 gene therapy patients in the trial (expected by around August) because one patient (#3) had an ALT elevation slightly above his ULN (47 vs ULN of 41). This discussion with regulators prior to dosing the last patients was meant to be an early safety precaution and was self-imposed as part of BioMarin’s protocol for a first-in-human hemophilia A gene therapy.”
Traders weren’t sympathetic, however.
Cavium Inc (CAVM)
Last but not least, semiconductor maker Cavium saw its stock plunge more than 17% after announcing it was acquiring peer and rival QLogic Corporation (NASDAQ:QLGC) for a cool $1.4 billion. QLGC shares, conversely, gained more than 9% on the heels of the healthy offer.
The premise of the acquisition wasn’t received well by analysts either, with at least four of them downgrading CAVM following the news. Canaccord Genuity analyst Matthew Ramsay opined:
“While we believe this acquisition could prove technologically prudent long term and adds important new elements to Cavium’s product portfolio, the deal brings with it a stark shift in anticipated strategy given Cavium is just ahead of several new product ramps and potentially lowers the long-term growth rate of the company … given our anticipation of a more compressed valuation until closer to realized merger synergies and given our ongoing near-term concerns about lumpiness in the MIPS-based business, we are downgrading Cavium shares from Buy to HOLD until catalysts grow closer, and lowering our price target from $61 to $48.”
Still, a handful of analysts are bullish on CAVM in the wake of the buyout. William Blair analyst Anil Doradla expects the combined companies to grow at an annual clip of 20% on what is an undeniable change in direction for Cavium.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.