Iconic Implosions: 3 Blue-Chip Stocks to Bail On Before It’s Too Late


  • These companies are struggling with significant problems that are weighing on their stocks. 
  • American Airlines (AAL): Lowered guidance and a senior executive departure are hurting the airline. 
  • Kohl’s (KSS): The department store chain has reported a shock loss as consumer spending declines. 
  • Salesforce (CRM): The tech giant missed its revenue target for the first time since 2006. 
Overvalued Blue-Chip Stocks - Iconic Implosions: 3 Blue-Chip Stocks to Bail On Before It’s Too Late

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There’s been a lot of bad news from iconic blue-chip companies lately. Poor financial results, lowered guidance and executive departures have dominated the news cycle and sent the share prices of many well-known companies sharply lower. As always, the market does not like bad news or surprises. The negative news has also called into question the management and direction of once dominant companies. Thanks to all this, there are a few overvalued blue-chip stocks worth avoiding right now.

Some blue-chip stocks are being especially hard hit as they had been trading at high valuations relative to their peers. This has led to an accelerated selloff as analysts and investors view the stocks as not worth their premium prices. While there is always the possibility of buying the dip, investors might want to think twice before risking capital on these troubled companies whose stocks are likely to be down for a while.

American Airlines (AAL)

An American Airlines (AAL) airplane waiting on the tarmac. Represents airline stocks.
Source: GagliardiPhotography / Shutterstock.com

American Airlines (NASDAQ:AAL) stock is down nearly 20% after the world’s largest carrier lowered its sales and profit guidance for the remainder of this year as it struggles with a continued slowdown in business travel. The airline also announced that Chief Commercial Officer Vasu Raja is leaving the company. News of the lowered guidance and executive departure sent stocks of all the major U.S. airlines down.

Specifically, American said that it expects unit revenues to decline 6% in the current second quarter from a year earlier. That’s down from a previous forecast of a 3% decline. The carrier also reduced its earnings estimate to a range of $1 to $1.15 a share. That’s down from a previous range of $1.15 to $1.45. The company attributed the lowered guidance to a decline in corporate customers and business travel, something it has struggled with since the onset of the pandemic. AAL stock is down 22% over the last 12 months and a top contender for current overvalued blue-chip stocks.

Kohl’s (KSS)

Image of Kohl's logo on a Kohl's store
Source: Sundry Photography/Shutterstock.com

Kohl’s (NYSE:KSS) stock is down 25% after the department store chain reported a shocking loss for the year’s first quarter. The company announced a loss per share of 24 cents, which was much worse than a profit of 4 cents expected among analysts. A year earlier, Kohl’s reported a profit of 13 cents per share. Revenue in the Q1 totaled $3.18 billion, which was below Wall Street forecasts of $3.34 billion. Sales were down 5.3% from a year ago.

The poor showing was blamed on a decline in consumer spending, particularly on discretionary items, amid inflation and high interest rates. Kohl’s also lowered its 2024 guidance, saying it now expects full-year sales to decline 2% to 4%. Analysts had a sales gain of 0.2% penciled in for the department store operator. Management said they expect full-year earnings per share (EPS) of $1.25 to $1.85. That’s well below the $2.34 a share that was expected on Wall Street.

Before the terrible print, KSS stock had been on an upswing, having risen more than 40% in the last 12 months. Now the stock is up only 25% over the past year.

Salesforce (CRM)

The entrance sign of Salesforce Tower, at the American cloud-based software company Salesforce's (CRM stock) Headquarters campus in San Francisco, California.
Source: Tada Images / Shutterstock.com

Salesforce (NYSE:CRM) was looking like an overvalued stock before its Q1 print. CRM stock had been trading at more than 50 times future earnings estimates, making it a pricey tech stock to own. The share price and valuation are moving lower after Salesforce missed its quarterly revenue target for the first time since 2006. The stock of the cloud software vendor fell 20% on news of the disappointing sales. Sadly, things look likely to get worse at Salesforce before they get better.

The company reported EPS of $2.44 compared to $2.38 that was expected among analysts. Revenue in the quarter totaled $9.13 billion versus $9.17 billion that had been forecast on Wall Street. Despite the miss, sales increased 11% from a year earlier. Salesforce blamed the results on longer deal cycles and the implementation of a new go-to-market strategy that cut into bookings. Revenue from the Professional Services unit fell 9% to $548 million during Q1.

Looking ahead, Salesforce offered forward guidance that missed analysts’ forecasts. The company expects earnings in the current quarter of $2.34 to $2.36 on $9.2 billion to $9.25 billion in revenue. Analysts had expected $2.40 in earnings and $9.37 billion in revenue. Management said that they expect deal compression and slowing projects in the professional services business to weigh on the company’s finances for the rest of this year. CRM stock is down 8.5% since January.

On the date of publication, Joel Baglole 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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

Article printed from InvestorPlace Media, https://investorplace.com/2024/06/iconic-implosions-3-blue-chip-stocks-to-bail-on-before-its-too-late/.

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