Why McDermott International, Medicines Co., and Liquidity Services Tumbled Today

Despite a solid beginning of the second quarter for the broader market, these three stocks gave up a lot of ground on Tuesday. Find out why here.

Dan Caplinger
Dan Caplinger
Apr 1, 2014 at 8:30PM

The stock market started April with a bang, as the S&P 500 hit a new all-time record high on investors' hopes that the market can continue its string of consecutive positive annual returns by posting more emphatic gains during the second quarter and beyond. Yet even though overall positive sentiment sent the broader market higher, McDermott International (NYSE:MDR), Medicines Co. (NASDAQ:MDCO), and Liquidity Services (NASDAQ:LQDT) didn't participate in the bullish mood on Wall Street, posting substantial losses on Tuesday.

McDermott declined 10% after the energy-industry engineering company offered an operational update last night. Investors weren't entirely pleased with McDermott's statement that it expects only low-single-digit percentage operating margins on the projects it has in its current backlog, which it argues will be insufficient to cover restructuring costs or fixed costs associated with the contracts. Moreover, with $149 million in new orders booked during the first quarter, shareholders have to be concerned about whether McDermott can produce even the 17% lower total revenue for the quarter that analysts currently expect. Add to the mix an offering of hybrid equity and debt, and McDermott investors were left with a lot of uncertainty about the future.

Medicines fell 15% after the company said last night that a federal court in Delaware found against it in its patent-infringement case against Hospira (UNKNOWN:HSP.DL), which had sought to gain approval for a generic version of Medicines' Angiomax drug. Although the court hasn't entered a final order yet, a ruling against Medicines could open the door to a rival Hospira generic drug by next year. Angiomax makes up almost 90% of total revenue for Medicines Co., and so any threat to its patent protection has huge implications for the stock's long-term viability.

Liquidity Services dropped 14%. The operator of various online auction marketplaces for surplus goods and other salvage and scrap materials has sought to bounce back from poor performance in 2013, with the company's most recent earnings report in February pointing to strong results in its retail-supply chain business and in municipal government. Yet profits haven't provided the growth lately that investors have wanted to see, and until Liquidity Services reverses course and starts performing better, it's hard to envision that a long-term turnaround will take root.