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Why Tilray, Alliance Data Systems, and Applied Materials Slumped Today

By Evan Niu, CFA - Aug 16, 2019 at 4:23PM

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Amid broader market gains, these stocks couldn't keep up.

Rising bond yields allayed investor concerns around a brief but significant inversion of the yield curve earlier in the week, sending major benchmarks higher on Friday. The market had plunged Wednesday when the inversion occurred, and volatility has been on the rise, with the VIX spiking month to date.

Despite the sunny mood on Wall Street, some stocks posted losses. Here's why Tilray (TLRY), Alliance Data Systems (BFH 0.44%), and Applied Materials (AMAT -3.87%) did so poorly.

A hand holding up a marijuana leaf in the sunlight

Image source: Getty Images.

Tilray could be heading to $4

High-flying marijuana stock Tilray plunged 11% after an analyst issued a scathing research report in the wake of the company's disappointing second-quarter earnings release earlier this week. Vertical Group analyst Gordon Johnson put out a note arguing that investors should short Tilray. Johnson assigned a price target of just $4, representing nearly 90% downside from Thursday's close, while reiterating a sell rating. Falling pot prices in Canada may hurt gross margins, and Tilray could potentially run out of cash in the first half of 2020, according to Johnson's estimates. The analyst described Tilray's second-quarter results as "an unmitigated disaster."

Alliance Data gets a downgrade, completes tender offer

Alliance Data Systems stock fell 9% following a downgrade from Wall Street. Deutsche Bank analyst Ashish Sabadra cut his rating on the customer loyalty program operator's shares from buy to hold, pointing to "multiple headwinds" that could adversely impact profitability in 2020. Potential challenges include winding down a portfolio that is currently held for sale and declining interest rates. The analyst reduced his price target from $162 to $158. CFO Tim King noted on the last earnings call that the company "had some success" in unloading certain held-for-sale portfolios. Separately, Alliance Data announced preliminary results of a modified Dutch auction tender offer that commenced last month. The company expects to repurchase over 5 million shares at $148 each for a total of $750 million, retiring nearly 10% of shares outstanding.

Applied Materials execs won't "call the bottom"

Finally, shares of Applied Materials recovered from 5% losses to finish down 1% after the semiconductor manufacturing equipment provider reported fiscal third-quarter earnings. While the results topped consensus estimates, management's cautious commentary dampened investor confidence. Revenue came in at $3.56 billion, which led to adjusted earnings per share of $0.74. Analysts had been modeling for $3.52 billion in sales and $0.70 per share in adjusted profit. On the conference call, CFO Dan Durn said, "Our semi-related business continues to feel stable, and while I'm still not ready to call the bottom of the cycle, I see positive leading indicators of future growth." Durn elaborated that the macroeconomic environment has "an elevated risk profile" due to geopolitical uncertainties. In terms of guidance, Applied Materials expects fiscal fourth-quarter revenue to be approximately $3.685 billion, plus or minus $150 million, which should translate into adjusted earnings of $0.72 to $0.80 per share.

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Stocks Mentioned

Applied Materials, Inc. Stock Quote
Applied Materials, Inc.
AMAT
$106.46 (-3.87%) $-4.28
Bread Financial Holdings, Inc. Stock Quote
Bread Financial Holdings, Inc.
BFH
$48.17 (0.44%) $0.21
Tilray Stock Quote
Tilray
TLRY

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

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