Last week, the Federal Reserve’s interest rate decision and the latest non-farm payroll (NFP) data dictated the stock market’s performance. During heightened volatility, a handful of stocks stood out due to intense price momentum, which may continue into the coming week due to company-specific events.
Regional banks attracted renewed scrutiny after New York Community Bancorp’s (NYSE:NYCB) disappointing quarterly earnings release. The company acquired assets from the failed Signature Bank (OTCMKTS:SBNY) in prior years, and lingering concerns over credit quality weighed on investor sentiment towards the sector.
Stay-at-home darling Peloton Interactive (NASDAQ:PTON) also reported lackluster financial results and downwardly revised its guidance.
However, one pharmaceutical firm stood out from its peers thanks to positive regulatory news: NeuroBo Pharmaceuticals (NASDAQ:NRBO). It triggered significant share price gains and a comparatively robust balance sheet.
These companies have shown noteworthy momentum, warranting attention as three stocks to watch this week.
New York Community Bancorp (NYCB)
New York Community Bancorp reported its Q4 2023 results on January 31, surprising markets and negatively impacting other regional banks. Subsequently, Moody’s (NYSE:MCO) placed the company under review to potentially downgrade its debt rating to junk.
The company announced an earnings loss and cut its dividend by over 70% after acquiring failed Signature Bank in the previous year, accelerating existing issues. Management explained the loss and dividend reduction formed part of establishing the required capital ratios for companies with over $100 billion in assets. This necessitated setting aside over half a billion dollars in provisions and distributing less to shareholders to build reserves. Other concerning signs, such as a 16% quarterly drop in net interest income (NII), emerged.
Jefferies (NYSE:JEF), Royal Bank of Canada (OTCMKTS:RBCPF), Compass Point and Deutsche Bank (NYSE:DB) adjusted their forecasts downwards. But in a positive signal, the company accumulated over $9 billion in cash over the past year. Excluding provisions, net profit would have been $300 million, higher than the $207 million reported previously and nearly double the prior year’s $172 million.
Despite the bank issuing a statement expressing confidence in share price recovery once markets appreciate the value-enhancing actions, lowering the dividend yield from 6.5% to 3.5% may complicate an immediate rebound as the timing and scale of any return to prior payout levels remains uncertain.
Peloton Interactive (PTON)
Peloton disappointed investors, with the company guiding that sales in the following quarter would be below consensus expectations. Management indicated they forecasted sales to decline in the coming reporting period.
There were some positive signs, however. The company has successfully increased gross margins on connected fitness products and maintained an overall gross margin figure above 40%. Additionally, Peloton has trimmed its cash burn significantly, reducing it to $37 million from $94 million in the prior year.
The earnings report likely contributed to Peloton’s share price reaching a record low, where it may find a temporary bottom pending new financial data. However, that will probably not emerge until the next earnings release towards the end of April. Even then, management still anticipates reporting negative EBITDA, although the loss is expected to narrow. On an optimistic note, Peloton has $737.7 million in cash reserves, down from $813.9 million last year, implying the business can sustain itself for years without needing to pursue shareholder dilution by issuing additional equity.
NeuroBo Pharmaceuticals (NRBO)
A press release issued on February 1 announced that the U.S. Food and Drug Administration (FDA) cleared the start of a Phase 1 clinical trial for DA-1726, an investigational new drug being developed for treating obesity. The trial will commence in the latter half of this calendar year.
One of the top 10 gainers last week, the company’s share price soared 67% following the announcement. It is unlikely that further momentum can be generated at this stage, as the details have now been priced in. Additionally, a rise of such scale would present an attractive opportunity for the company to issue shares to strengthen its balance sheet, inevitably diluting value. For those investors who acquired shares with a short-term holding period in mind, this may be the optimal time to secure profits.
As recounted in December 2023, the company executed a 1-for-8 reverse stock split to regain compliance with the ongoing listing requirements into Nasdaq. Historically, the company has reported its full-year financial results in late March.
With interim data from the Phase II clinical trial of DA-1241 for the treatment of non-alcoholic steatohepatitis (NASH) anticipated in the second half of this year, it is unlikely to see a similar reaction any time soon.
According to its most recently published quarterly financial report, the company had $25.8 million in cash and cash equivalents at the end of Q3 2023. Management guidance indicated this would provide sufficient capital to fund operations into Q4 2023.
On the date of publication, Stavros Tousios did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
