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Why 2 Key Stocks Plunged in Premarket Trading Wednesday

By Dan Caplinger – Oct 20, 2021 at 8:33AM

Key Points

  • Markets looked poised for a small pullback Wednesday morning.
  • Shares of Novavax dropped 25% on reports of continued manufacturing issues.
  • Brinker International also saw double-digit declines following its release of preliminary quarterly results.

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Big downward moves reflected downbeat news from two well-known companies.

The stock market looked poised to take a brief pause on Wednesday morning, consolidating some of the recent gains it has seen. Major stock market benchmarks remained near their all-time highs, but futures markets posted modest declines ahead of the regular trading session. As of 8 a.m. EDT, futures on the Dow Jones Industrial Average (^DJI -0.43%) were down 15 points to 35,308. S&P 500 (^GSPC -0.30%) futures had fallen 3 points to 4,509, and Nasdaq Composite (^IXIC -0.21%) futures had declined 5 points to 15,394.

A couple of stocks saw particularly large drops in premarket trading Wednesday. Novavax (NVAX -2.25%) has shown a lot of promise with its COVID-19 vaccine candidate, but the company had to deal with some unexpected news that raised new concerns for shareholders. Meanwhile, Brinker International (EAT -1.14%) released early financial results that showed some of the headwinds the restaurant industry continues to face.

Manufacturing issues plague Novavax

Shares of Novavax were down almost 25% on Wednesday morning. The move followed reports late Tuesday that the company is having difficulties in producing its COVID-19 vaccine.

A report from Politico outlined the difficulties. With global agencies counting on Novavax for a significant portion of the 2 billion doses of vaccine that have been earmarked for countries without the financial resources that the U.S. and other major economies have, delays have resulted from Novavax's apparent difficulties in meeting quality standards from regulatory agencies. Testing methods haven't satisfied regulators that vaccines would be pure enough to be effective, and despite Novavax having disclosed some of the challenges it has faced, sources suggest the problems are more serious than many had thought.

Four vials labeled COVID-19 vaccine.

Image source: Getty Images.

Novavax has consistently disappointed investors with the pace of its vaccine development program. Just last month, the company once again pushed back its timeline for filing for Emergency Use Authorization in the U.S. for its COVID-19 vaccine, and many now question whether Novavax will make timely filings in other key regions like the EU, Canada, Australia, and New Zealand.

At this point, it's unclear whether Novavax will ever live up to its full potential. With the stock down by more than 60% from its highs, investors appear to be losing confidence in the vaccine maker.

An unappetizing quarter

Meanwhile, Brinker International saw its shares fall 13% in premarket trading. The restaurant company behind the Chili's and Maggiano's chains reported select financial metrics in advance of its annual investor day presentation, and shareholders didn't like what they saw.

Brinker's numbers showed some improvement from year-ago levels. Revenue of $860 million in the company's fiscal first quarter was up 18% year over year. Earnings climbed 21% to $0.34 per share on an adjusted basis. Comparable sales were up not only against the pandemic-affected first quarter of fiscal 2021, but also compared to pre-pandemic levels two years ago.

However, investors were troubled by recent trends hurting Brinker. CEO Wyman Roberts pointed to the surge in COVID-19 cases during the summer as a cause for even larger labor and commodity costs that narrowed its profit margins considerably. Brinker intends to pass through some of those costs to its customers, but in a fragile environment for the industry, it's unclear whether the company truly has the pricing power to make those menu hikes stick.

Uncertainty about the future for restaurant and hospitality businesses is forcing investors to ask whether the entire industry is under pressure or whether certain companies are taking the brunt of the damage. Today, investors seem to be concluding that Brinker isn't making the grade, but what the company says at its investor day presentation could provide more useful information.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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