Why Red Hat, Caesars Entertainment, and Exelixis Tumbled Today

Favorable economic news helped send the stock market higher despite the usual pre-weekend jitters on Wall Street, as larger gains earlier in the day gave way to traders once again choosing not to hold onto positions in light of geopolitical uncertainties and other risks. Yet, even though major indexes hung onto modest gains, Red Hat (NYSE: RHT  ) , Caesars Entertainment (NASDAQ: CZR  ) , and Exelixis (NASDAQ: EXEL  ) fell sharply on the day.

Red Hat dropped 7% despite reasonably encouraging quarterly results. Revenue growth of 15% led to year-over-year gains in adjusted earnings, and the balances on its deferred revenue arrangements tied to its long-term contracts jumped by 18%. Yet, even as subscriptions rose, Red Hat expects adjusted earnings for the current fiscal year to come in around 5% below what investors had wanted to see, with guidance for a 14% jump in revenue proving insufficient to satisfy shareholders. With intense competition for its Linux operating system, Red Hat's efforts to maintain its market share and invest in future-looking initiatives could hurt operating margins, and that has some investors nervous about whether Red Hat can successfully keep its rivals at bay.

Caesars declined more than 7% after reporting that it would sell seven million shares of common stock, hoping to raise between $130 million and $140 million in order to help finance its operations. With major investors Apollo Global Management (NYSE: APO  ) and TPG Capital guiding the company, Caesars said that it would close its Harrah's Tunica casino in Mississippi because of poor sales, and conditions on the Las Vegas strip have been poor, as well. Without the exposure to the fast-growing gaming market in Macau that most of its rivals have, Caesars faces billions in debt, and credit-default swaps are priced at levels that reflect a high probability of future default on bonds -- let alone possible returns on stock.

Exelixis plunged another 12%, extending its losses from earlier in the week after failing to hit a home run with its study of prostate-cancer treatment cabozantinib. The drop in Exelixis stock might seem unwarranted given that the only news from the study was that an independent committee recommended that it continue to its natural conclusion rather than stopping early. The problem, though, is that Medivation (NASDAQ: MDVN  ) , Johnson & Johnson, and Bayer all were so promising that they had their late-stage studies conclude early, and so Exelixis investors got their hopes up that cabozantinib would work out the same way. The news isn't fatal to Exelixis' hopes, but it does raise concerns about whether the drug's efficacy will match up to its rivals.

Three stocks that could become your next huge winner
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have done it before, and now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2014, at 3:58 PM, duckduffer wrote:

    "The problem, though, is that Medivation (NASDAQ: MDVN ) , Johnson & Johnson, and Bayer all were so promising that they had their late-stage studies conclude early, and so Exelixis investors got their hopes up that cabozantinib would work out the same way"

    The problem with that statement is the math. All 3 of the above studies had interim analysis done with significantly more events (disease progression). While EXELIXIS had the interim done after 387, all the others were done after over 500. In this type of study of late stage disease, this is a huge point that the author does not address. At the same time another approved CRPC drug, Jevtana (cabazitaxel) had a similarly designed trial to Comet with similar patient counts and also had to continue to the final analysis, yet ultimately was approved.

    Another issue with the authors implication is failing to mention that the Comet trial was designed to go after the drugs mentioned above have stopped working. Thus Cabo is facing a much more difficult population then J&J and MDVN faced with their CRPC drugs. This is a very sick patient profile that has run out of options. Cabo has shown efficacy in this difficult space and as such is likely too meet its trial endpoints.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2895186, ~/Articles/ArticleHandler.aspx, 8/31/2015 4:01:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated Moments ago Sponsored by:
DOW 16,562.07 -80.94 -0.49%
S&P 500 1,976.45 -12.42 -0.62%
NASD 4,783.44 -44.89 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 3:45 PM
APO $18.68 Down -0.37 -1.94%
Apollo Global Mana… CAPS Rating: ***
CZR $9.49 Up +0.32 +3.49%
Caesars Entertainm… CAPS Rating: *
EXEL $6.01 Down -0.04 -0.66%
Exelixis CAPS Rating: ****
MDVN $88.74 Down -3.67 -3.97%
Medivation, Inc. CAPS Rating: ***
RHT $72.24 Down -1.62 -2.19%
Red Hat, Inc. CAPS Rating: ***