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Why Humana, Cato, and First Solar Slumped Today

By Dan Caplinger – Jul 7, 2016 at 6:06PM

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These stocks helped pull the market downward. Find out why.

Image source: First Solar.

The stock market traded slightly lower on Thursday, although major market benchmarks were down only around 0.1% on the day. Stocks initially jumped out to early gains, and the Nasdaq Composite held onto those gains, thanks to better performance in the technology sector.

Energy stocks held down the broader indexes, however, and general worries about the state of affairs in the global economy also restrained bulls from pushing the stock market higher. Several stocks performed poorly on Thursday, and among the biggest decliners were Humana (HUM -0.29%), Cato (CATO -0.69%), and First Solar (FSLR -0.13%).

Humana faces antitrust scrutiny

Humana fell almost 10% after reports that the U.S. Department of Justice intends to meet with would-be acquirer Aetna on Friday concerning their proposed merger. Among the sticking points in the deal is whether a combination of Humana and Aetna will give the post-merger company too great a market share among Medicare Advantage plans, which those eligible for Medicare can choose in lieu of the traditional Part A hospital and Part B medical coverage options.

Aetna has already looked at making selected divestitures of certain businesses in order to satisfy antitrust regulators, but some believe that a broader skepticism at the Justice Department about the combined impact of all the proposed deals in the health-insurance space could lead to greater hurdles in getting mergers approved. The drop puts Humana shares near their worst levels since early 2015, and a failure to get DOJ approval could be disastrous for shareholders.

Cato deals with sluggish sales

Cato declined 8% in the aftermath of its monthly report on same-store sales. The operator of retail stores primarily in the Southeastern U.S. said that comps fell 8% compared to last year's similar period, and CEO John Cato noted that the figures "were well below expectations." Those following the company had expected flat performance for same-store sales during the month, but many investors have been disappointed at the poor conditions throughout the retail industry.

Still, the problem that Cato faces is that several other retailers have reported favorable comps, including apparel specialists like L Brands concepts Victoria's Secret and Bath & Body Works. The stock's valuation is cheap enough to cushion the blow, but Cato will have to rebound from a business perspective to avoid further damage in the future.

First Solar feels the shade

Finally, First Solar dropped 10%. The solar giant received an analyst downgrade from Deutsche Bank on Thursday, with the bank pointing to sluggish demand for products that are likely to be made obsolete by more advanced offerings in the near future. The analysts cut their price target almost in half in cutting their rating on the stock from buy to hold.

Yet longer-term trends appear to support the increased adoption of solar technology to generate power in the years and decades to come. First Solar remains well-positioned to meet global demand from wherever and whenever it comes.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

First Solar Stock Quote
First Solar
$168.32 (-0.13%) $0.22
Humana Stock Quote
$546.78 (-0.29%) $-1.59
Cato Stock Quote
$10.09 (-0.69%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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