8 Companies That Have Seriously Damaged Prospects for Investors

October 25, 2014 by Jon C. Ogg

This past week was another of serious recovery for the broad stock market. The S&P 500 rallied some 4.1% during the week and ended up a sharp 7.9% from the lows put in during the selling madness of the prior week. Meanwhile, the Dow Jones Industrial Average (DJIA) ended up 2.6% on the week and was 6% higher than the selling climax lows of the prior week. All that considered, earnings season has not exactly been a boom for all major companies. Some of them had news out that very likely changed their fortunes for the worse — perhaps much, much worse.

24/7 Wall St. has tracked eight stocks that may have literally destroyed the near-term future for their stocks and for their investors. These companies may have hurt their stocks so badly that investors may simply ignore and avoid these stocks for longer than just the rest of 2014. Most of the bad news came from earnings. After all, during earnings season that is often all you hear about. Still, the damage has been done.

The good news is that almost all companies can recover in time. The bad news is that most companies take a series of quarters to remedy their woes. Some even take longer than that. Some of these stocks may recover much faster than others. It really just depends on which companies and management teams are able and willing to change their stripes.

24/7 Wall St. has made a summary of the news, referenced the larger story at the time, included analyst commentary or outside views, and added color when applicable. These are the eight stocks that destroyed their near-term future for investors. We have even included a chart montage as well.

Amazon.com

Amazon.com Inc. (NASDAQ: AMZN) took the cake with an 8.3% loss to $287.07 on Friday. The stock hit a 52-week low of $284 after the online seller of everything reported earnings on Thursday of -$0.95 per share and $20.58 billion in revenue, against Thomson Reuters consensus estimates of -$0.74 in earnings per share and $20.84 in revenue. Jeff Bezos then gave fourth-quarter guidance of loss of $570 million to earnings of $430 million, as well as $27.3 billion to $30.3 billion in revenue. That compared to consensus estimates of $0.67 in earnings per share and $30.89 billion in revenue.

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Investors were not happy with the loss that Amazon took for the quarter, and the notion that the key and critical fourth quarter looks bad too — and the company had negative margins. Bezos has been treating Amazon like a charitable institution rather than a business and playing a game of chicken with investors and valuations for too long. This company is now about 20 years old and has been public since the 1990s. With a $130 billion valuation, it cannot keep trading with loss valuations and being valued at “more than 150-times next year’s earnings” forever.

Amazon investors have realized that Bezos is Walmarting businesses and that should not keep losing money to be disruptive, nor keep chasing money-losing ideas just to develop a footing in a new area. A new class of investors will demand more ahead. Analysts maintained mostly positive ratings, but they slashed price targets handily on Friday — if this continues, they will do worse than just lower their price targets.

Cabela’s

Cabela’s Inc. (NYSE: CAB) reported earnings Thursday morning of $0.81 per share on $886.0 million in revenue. That was against consensus estimates of $0.86 in earnings per share and $926.5 million in revenue. For the 2014 full year, the company lowered its guidance to $3.10 to $3.20 in earnings per share, compared to consensus estimates of $3.51 in earnings per share.

Following this news, the stock closed down 15% to $49.31 on Thursday and since closed Friday at $49.37. Shares of Cabela’s took this dramatic plunge due to a severely weakened guidance on the full year, attributed to the petering out of firearm sales. Hint, hint: Most people who wanted to load up on guns and ammo already have, so the trend could remain for more than a quarter or two. The company’s stock has a consensus analyst price target of $61.45 and a 52-week trading range of $47.81 to $72.53. That 2014 low was put in on Friday before it closed up six cents at $49.37.

Cree

Cree Inc. (NASDAQ: CREE) is supposed to be an LED trend leader. The company reported earnings on Tuesday of $0.24 per share and $427.7 million in revenue, versus consensus estimates of $0.36 in earnings per share and revenue of $432.1 million. Cree gave guidance for the next quarter for earnings of $0.20 to $0.24 per share, and $400 million to $420 million in revenue. That compares to consensus analyst estimates of $0.24 in earnings per share and $419.18 million in revenue.

Following this news, the stock closed down over 17% to $27.28 on Wednesday but ended Friday at $29.67. Shares did manage to bounce almost $2.50 from the lows of the week, but long gone are those old calls from analysts predicting this stock will go above $50, $60, and into the stratosphere. Cree’s stock has a consensus analyst price target of $31.67 and a 52-week trading range of $27.25 to $67.98.

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IBM

International Business Machines Corp. (NYSE: IBM) took the cake this week, destroying itself with an early Monday surprise that its earnings stank up the joint. It even abandoned its ambitions of $20.00 in earnings per share by the end of 2015. Investors have certainly had enough after this week, if not before. Warren Buffett has even been duped handily here. IBM faces lower margins and a declining backlog as well.

IBM reported earnings on Monday of $3.68 per share and $22.4 billion in revenue, against consensus estimates of $4.32 in earnings per share and $23.37 billion in revenue. Following this news, the stock closed down about 7% to $169.10 on Monday after closing the previous Friday at $182.05. Despite the stock market recovery, IBM kept drifting lower and closed the week out at $162.08. The stock has a consensus analyst price target of $170.57 and a 52-week trading range of $161.10 to $199.21. Be advised: one analyst, who was already at the lowest price target of all analysts before the news, now sees IBM potentially heading down to $125!

Ocwen Financial

Unlike most other companies in this list, Ocwen Financial Corp. (NYSE: OCN) was wrecked this week for allegedly backdating foreclosure letters. News broke on Tuesday and the company released a press release detailing a software error that had been the root problem and that it was being addressed. The New York letter to the company seemed very damning, and investors are having to now decide whether this “error” was a glitch.

How will the public model this risk when New York regulators said that this could potentially cover hundreds of thousands of borrowers? Ocwen’s investors decided to shoot first and ask questions later. Moody’s decided to downgrade Ocwen on the news with credit risks ahead, including the notion that continued regulatory scrutiny further damages Ocwen’s franchise position. This was a $26 stock on Monday. Following this news, the stock closed down over 25% to $19.04, and the stock closed down $0.24 at $19.27 on Friday. Ocwen’s stock now has a consensus analyst price target of $28.33 and a 52-week trading range of $18.57 to $60.18.

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Pandora Media

Pandora Media Inc. (NYSE: P) opened up the sins of the world again, for investors this time. The online music service reported earnings on Thursday of $0.09 per share and $239.6 million in revenue, against consensus estimates of $0.08 in earnings per share and revenue of $238.50 million. For the 2014 full year, the company gave guidance of $0.19 to $0.21 in earnings per share and $912 million to $917 million in revenue, which compares to consensus estimates of $0.18 per share in earnings and $911.58 million in revenue. Prior to the drop, this valued Pandora at over 100 times earnings for 2014 and almost 50 times expected 2015 earnings.

Following this news, the stock fell to a new 52-week low of $19.35 on Friday, before closing down 13.5% at $20.00 even. Investors have to wonder if this valuation for slowing growth and a business model that could be at risk is worth the massive premium now. Its stock has a consensus analyst price target still up at almost $32, and the new 52-week trading range is $19.35 to $40.44. Now that Pandora’s shares have been cut in half, that is a sting that will burn many investors, potentially for years to come, even if the stock recovers from the current lows.

3D Systems

3D Systems Corp. (NYSE: DDD) did not formally release earnings, but on Wednesday it lowered guidance to $0.16 to $0.19 in earnings per share and $164 million to $169 million in revenue. This was against consensus estimates of $0.21 in earnings per share and revenue of $186 million. For the full year, the company gave guidance in earnings of $0.70 to $0.80 per share, as well as $650 million to $690 million in revenue. That compares to consensus estimates of $0.78 in earnings per share and just over $707 million in revenue.

What investors have to come realize, perhaps even long before this earnings confession, is that they just bid up the promises for 3D printing growth far too high. Bubbles happen, and the 3D printing bubble valuation has come and gone. 3D Systems closed down almost 12% to $36.67 on Wednesday, after closing the previous Friday at $41.55. This Friday’s close was $37.07. The analyst at Oppenheimer stepped into this vortex hours before the company issued its guidance. The consensus analyst price target for the stock is $49.25, and it has a 52-week trading range of $36.17 to $97.28.

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Yelp

Yelp Inc. (NYSE: YELP) may have seen its name unofficially changed to “Whimper” this week. The reviews site reported earnings on Wednesday of $0.05 per share on $102.5 million in revenue. Consensus estimates were for $0.03 in earnings per share and $99.00 million in revenue. For the 2014 full year, the company gave guidance of $375 million to $376 million in revenue, compared to consensus estimates of $0.09 in earnings per share and $375.2 million in revenue.

A search algorithm change in Google was a culprit, but what if Google decided to have this service on its own or to limit Yelp from search? Following Yelp’s earnings news, the stock closed down almost 15% to $57.17 on Thursday since the close the previous Friday at $67.09. This Friday’s close included a recovery of nearly 4% to $59.42 as analysts may have provided support, against a 52-week trading range of $49.11 to $101.75. The problem is that Yelp has to blow out estimates because it is valued at almost 500 times this year’s expected earnings and at 150 times next year’s expected earnings.

A montage of charts has been included from StockCharts.com to show how damaged these stocks have become (click to enlarge).

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