Major indices mostly traded flat this week as investors digested a slight rise in oil prices Friday, as well as disappointing GDP data. More specifically, the U.S. economy grew at a meager 1.2% annual growth rate during the second quarter, and the first-quarter GDP was reduced from 1.1% down to 0.8%. While the markets didn’t react much to the slightly gloomy data, there were some stocks getting hammered and making headlines for various reasons this week.
Shares of Seres Therapeutics (NASDAQ: MCRB) imploded on Friday after the biotech company announced news that an important clinical study didn’t go so well. Shares immediately collapsed, trading down about 70% on Friday.
Looking at the details, Seres Therapeutics’ interim results for its ECOSPOR study showed its lead product candidate, SER-109, failed to record a statistically significant rate over the placebo group. More specifically, the phase 2 study was hoping to show that using SER-109 would reduce the relative risk of C. diff infection, or CDI, recurrence.
The results showed that CDI recurrence was observed in 44% of patients using SER-109. While this was favorable when compared to the 53% recurrence in patients on the placebo, it wasn’t good enough.
“Our priority is to complete a full review of the clinical results and microbiome data of the Phase 2 study and to compare it to data from the prior investigator sponsored Phase 1b. Based on this information and pending discussions with the FDA, we plan to make any necessary changes to our development plans for SER-109,” said Seres Therapeutics’ CEO, Roger Pomerantz, in a statement.
To sum that up in fewer words: Back to the drawing board. And those are words that no investor wants to hear; hence, the severe drop in stock price on Friday.
As good as it gets?
Speaking of words that no investor wants to hear, Ford Motor Company (NYSE: F) spoke a few of them during its second-quarter earnings call Thursday morning. “We’re starting to see a maturation of the economic cycle,” said Ford Chief Financial Officer Bob Shanks, according to the Associated Press.
He also said separately: “We saw higher U.S. incentives — that was for the industry and for us. The industry increased and we increased in line with the industry.” Shanks said, according to Bloomberg.
Those are two very-touchy subjects for investors within the automotive industry. Major automakers, such as Ford, are trading in mid-single-digit price-to-earnings ratios because investors have been concerned that sales in the highly profitable U.S. market are peaking.
The concern has also been that, when sales peak, if inventory isn’t managed properly, it could lead to excess supply of vehicles, and then an incentive war — which is the destroyer of profits. Now, that’s far from imminent, but as Ford’s stock dropped 8% Thursday, investors aren’t lining up to wait and see.
As far as Ford’s financial data goes, it wasn’t really a bad quarter. It’s just that the prior year’s quarter is a brutal comparison. Revenue was up 6% as wholesales remained flat, suggesting that sales of higher-priced SUVs and trucks are helping the top line.
While many headlines were quick to point out that Ford’s net profit was down 9%, those people neglected to mention that it was still the automaker’s second-best Q2 profit in company history. Ford also posted record quarterly automotive operating cash flow, and its first half of 2016 was a record for adjusted pre-tax profits.
Investors may be refusing to buy automakers as the realization that the surge of new-vehicle sales every year since the great recession is finally maturing.
When good isn’t good enough
If you were told that Infinera (NASDAQ: INFN) reported second-quarter results on Thursday that showed a 25% jump in revenue, to $259 million, and a similar 20% jump in net income, to $30.9 million, how high would you say the stock price jumped? If your answer was a 33% decline, you roughly nailed it. What happened?
Despite the results topping management’s prior outlook, as well as Wall Street analysts’ estimates, management surprised investors when it said it sees soft demand for some of the company’s product lines, and forecast rougher quarters to come. More specifically, management believes that third-quarter revenue will roughly be between $180 million and $190 million — about a 20% decline from last year’s third quarter. For more context, analysts had been forecasting revenue to reach about $273 million.
That struggle will likely filter to the bottom-line results, as well. Management is now projecting that earnings per share will be within a few pennies of $0, down from last year’s $0.22 per share. Despite a solid second quarter, the bombshell forecast was enough to send investors running, and for analysts to drop four downgrades on the company.
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