With another mixed message served up by Friday morning’s jobs report for September, traders were once again unsure of what to do with stocks. The initial selling gave way for strong buying in the middle of the day, but by the time the closing bell rang, the S&P 500 was down 0.33% for the session, and still trapped between a key technical floor and ceiling.
It could have been worse, however, and for owners of Sarepta Therapeutics Inc (NASDAQ:SRPT), Honeywell International Inc. (NYSE:HON) and Tyson Foods, Inc. (NYSE:TSN), it was. Here’s a closer look at why these names led the bearish charge on Friday.
Tyson Foods, Inc. (TSN)
Chicken producer Tyson Foods, along with rivals Pilgrim’s Pride Corporation (NASDAQ:PPC) and Sanderson Farms, Inc. (NASDAQ:SAFM), were all carved up rather well on Friday following reports that TSN had been downgraded in response to a string of class-action lawsuits, each claiming price collusion had kept chicken prices artificially high.
PPC and SAFM were each down to the tune of 4%, but Pivotal Research analyst Tim Ramey took specific aim at TSN, downgrading it from a “Hold” to a “Sell,” and cutting the firms price target on Tyson Foods share from $100 to $40. Ramey explained, “Our thesis is that the class-action suit has merit and will lead to intense scrutiny of the broiler sector.”
TSN ended the day down 9% on the heels of the downgrade.
Honeywell International Inc. (HON)
Owners of industrial component maker Honeywell International also found themselves on the wrong side of the table today, with HON giving up 7.5% of its value following the release of alarming guidance for the rest of 2016.
For the recently completed third quarter, Honeywell expects to report a profit of $1.60 per share, short of the $1.70 per share of HON analysts were collectively expecting, and shy of the prior guidance of between $1.67 and $1.72. Things aren’t expected to heat up later in the year either. Honeywell is now calling for income of between $6.60 and $6.64 per share for all of 2016, with organic sales falling between 1% and 2%. Analysts were anticipating income of $6.68 per share of HON on a 4.5% improvement in revenue.
JPMorgan’s analyst C. Stephen Tusa thinks the worst-case scenario may already be more than priced in, however. He notes:
“…our first cut at calculating an “operating miss” implied by this guidance is ~$0.12 for 3Q and $0.19 for the year. This seems bad, and for Honeywell, it is, but at 3% of the annual guide, it’s not catastrophic. To widen the lens, the profit cut from the start of the year to today is now -5%, still in line with the group. What always matters, in our view, is the forward look, and here, at face value, with the extra restructuring (total is now $260-270 mm, or a total ~$0.25+ of growth) and pull forward of OEM incentives, along with many other items like forex, interest expense and year 2 M&A accretion, the bridge to ’17 stands out as the best in the sector, getting us to 7% growth before organic.”
Sarepta Therapeutics Inc (SRPT)
Last but not least, the buzz surrounding bipharma company Sarepta Therapeutics has been palpable since the middle of last month. That’s then the Food and Drug Administration approved its ballyhooed Duchenne muscular dystrophy (DMD) drug eteplirsen. SRPT shares were up 119% since then, through yesterday.
Some air was let out of the tires today, however, when at least one insurer balked at including eteplirsen on its formulary list. Anthem Inc (NYSE:ANTM) will not be purchasing the drug for any of its customers.
It wasn’t the $300,000 per-year price tag that spooked the insurer … at least not officially. Anthem said it is concerning that eteplirsen is “investigational and not medically necessary,” pointing back to a lengthy and often controversial road the therapy took to its eventual FDA approval. With Anthem’s argument being made, other insurers may use similar ideas to get around offering the expensive treatment to its customers.
SRPT shares fell 6.2% on that prospect.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.