Having had some time to think about it, investors decided they’d rather be in the market in front of the Brexit decision instead of out of it. The S&P 500 advanced 1.34% today to close at 2113.32, hurdling a key technical ceiling in the process, and moving within reach of a new multi-month high.
The rally didn’t include every stock, however. Southwest Airlines Co (NYSE:LUV), Red Hat Inc (NYSE:RHT) and Whiting Petroleum Corp (NYSE:WLL) each ended the day in the red, and for understandable reasons.
Here’s what traders need to know.
Southwest Airlines Co (LUV)
Southwest Airlines shares were grounded on Thursday when investors interpreted caution as a sign of trouble. Specifically, LUV stock fell nearly 2% today after the company opted to postpone the purchase of 76 Boeing Co (NYSE:BA) aircraft that would have cost a total of $1.9 billion.
The bulk of the original 2011 order is still being fulfilled, or still on schedule for future delivery, but the tightened purse strings could hint at bigger demand problems for the airline.
Fanning the bearish flames on Thursday was the 2% jump in the price of crude oil, which in turn pumps up the price of jet fuel. If fuel costs continue to rise, LUV and other airlines will likely see crimped profit margins.
Red Hat Inc (RHT)
Whether Red Hat delivered good news or bad news after the close on Wednesday is largely a matter of perspective. But, the near-2% pullback RHT left behind today says most traders saw the glass as half-empty rather than half-full.
The good news: For its first fiscal quarter of the year, Red Hat earned 50 cents per share, on revenue of $567.9 million. Profits met analyst expectations, while the top line exceeded estimates of $563.2 million.
The bad news: The software company also reeled in its full-year earnings guidance. Red Hat now anticipates posting a profit of between $2.19 and $2.23 per share of RHT in 2016, versus an average analyst estimate of $2.24.
Even with the dialed back outlook, the company’s still has plenty of fans. William Blair analyst Jason Ader noted:
“While investors may have wanted a beat-and-raise, we note that on the prior earnings call, management substantially raised fiscal 2017 revenue and EPS above consensus. For the May quarter, demand continued to be healthy across core RHEL and emerging products. Meanwhile, each of the three major geographic regions showed strong bookings growth, which we believe reflects the lack of macro sensitivity in Red Hat’s business (open source saves money).”
Whiting Petroleum Corp (WLL)
Last but not least, investors already knew something like it was in the cards, but what caught owners of Whiting Petroleum was the sheer extent of the potential dilution of WLL shares the company put into place today.
In short, Whiting Petroleum is exchanging $1.06 billion worth of notes for new convertible (mandatory) notes. The company will convert some of these notes to shares right way, but if all were converted, it would inject another 83 million shares into the float. For perspective, only 210 million shares are issued and outstanding.
WLL closed down more than 6% lower on Thursday.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
