In this article, we will take a look at the 11 stocks recently downgraded by analysts.
Major stocks including Twitter, Inc. (NYSE:TWTR), Splunk Inc. (NASDAQ:SPLK) and NIKE, Inc. (NYSE:NKE) recently received downgrades from notable Wall Street analysts.
Twitter, Inc. received a downgrade primarily due to a lack of clarity around its future, while ratings for NIKE, Inc. were lowered because of its elevated inventories and falling operating income.
Moreover, financial stocks, including Morgan Stanley (NYSE:MS) and Ally Financial Inc. (NYSE:ALLY), also received downgrades from analysts. Check out the complete article to see the reasons behind the revised recommendations for these companies.
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11. Venator Materials PLC (NYSE:VNTR)
Number of Hedge Fund Holders: 8
Shares of Venator Materials PLC (NYSE:VNTR) slid nearly four percent in pre-market trading Thursday, October 6, after UBS downgraded the chemical manufacturing company from “Neutral” to “Sell.”
Analyst Joshua Spector referred to the increasing pressure on Venator Materials PLC due to dwindling TiO2 demand, elevated costs and weak cash flow. Spector also trimmed his price target for Venator stock from $2.05 per share to $0.65 per share.
The latest downgrade came after Venator Materials PLC issued a business update on its third quarter. The company cautioned that it experienced a significant drop in sales volumes for its TiO2 products across Europe and Asia.
10. Sotera Health Company (NASDAQ:SHC)
Number of Hedge Fund Holders: 16
Shares of Sotera Health Company (NASDAQ:SHC) fell over 11 percent on Wednesday, October 5, after Citi analyst Patrick Donnelly lowered his ratings for the sterilization and lab testing services provider from “Buy” to “Neutral.”
Donnelly was primarily moved by the increasing litigation and financial risk surrounding the company. Sotera Health Company was recently hit by a $363 million penalty over ethylene oxide emissions.
The analyst believes Sotera Health Company could potentially face similar charges in future that could hurt its balance sheet. He also cut his price target for Sotera stock from $25 per share to $9 per share.
9. Silvergate Capital Corporation (NYSE:SI)
Number of Hedge Fund Holders: 23
Shares of Silvergate Capital Corporation (NYSE:SI) slipped over three percent in pre-market trading Thursday, October 6, after Wells Fargo downgraded the bank holding company from “Overweight” to “Underweight.”
Analyst Jared Shaw pointed towards declining volumes in the Silvergate Exchange Network and increasing deposit outflows due to weak crypto prices. Shaw added that continued pressure on the company’s balance sheet is not mirrored in its stock. He trimmed his price target for Silvergate Capital Corporation from $115 per share to $70 per share.
Like Silvergate Capital Corporation, analysts also revised their ratings for Twitter, Inc., Splunk Inc. and NIKE, Inc..
8. CarMax, Inc. (NYSE:KMX)
Number of Hedge Fund Holders: 28
Stephens analyst Daniel Imbro lowered his ratings for CarMax, Inc. (NYSE:KMX) from “Overweight” to “Equal-Weight” on Monday, October 3, citing fading demand trends for used vehicles.
Imbro doesn’t see any significant upside in the near term. Imbro also lowered his adjusted earnings estimates for fiscal 2023 and fiscal 2024 following the company’s recent earnings. Moreover, he cut his price target for CarMax, Inc. from $105 per share to $64 per share.
The downgrade came just days after CarMax, Inc. missed profit and sales expectations for its fiscal second quarter. The used vehicle retailer reported earnings of 79 cents per share, missing expectations of $1.39 per share with a big margin. Revenue of $8.1 billion also came in below the estimates of $8.5 billion.
7. AutoNation, Inc. (NYSE:AN)
Number of Hedge Fund Holders: 31
Shares of AutoNation, Inc. (NYSE:AN) inched lower in pre-market trading Thursday after receiving a downgrade from JPMorgan. The research firm cut its ratings for the automotive retailer from “Overweight” to “Neutral,” saying the auto sector is also vulnerable to the current macro challenges.
AutoNation, Inc. is scheduled to post its financial results for the third quarter on October 27. Its rival CarMax, Inc. recently delivered weak quarterly performance and many expect similar results from AutoNation later this month.
AutoNation, Inc. shares struggled to gain value this year amid elevated inflation and macro uncertainty. The stock is down about 10 percent on a year-to-date basis.
6. DocuSign, Inc. (NASDAQ:DOCU)
Number of Hedge Fund Holders: 37
Morgan Stanley turned bearish on DocuSign, Inc. (NASDAQ:DOCU) on Monday, October 3. The research firm reduced its ratings for the electronic signature company from “Equal-Weight” to “Underweight.”
Analyst Josh Baer thinks intensifying competition and pricing pressure could weigh in on the stock. Baer also pointed towards normalizing demand trends and leadership challenges surrounding the company. He cut his price target for DocuSign, Inc. from $73 per share to $47 per share.
The downgrade follows the company’s recently announced restructuring program. DocuSign, Inc. plans to cut 9 percent of its workforce as a part of that plan.
5. Ally Financial Inc. (NYSE:ALLY)
Number of Hedge Fund Holders: 42
Shares of Ally Financial Inc. slipped over two percent after the opening bell on Thursday, October 6. The drop came after Raymond James downgraded the financial services company from “Outperform” to “Market Perform.”
Analyst Michael Long believes increasing macro uncertainty could potentially lead to higher loan losses, hurting the growth of financial stocks, including Ally Financial Inc.. Long also cautioned about a possible compression in net interest margin.
Separately, Ally Financial Inc. appeared in the second-quarter 2022 investor letter of investment management firm Oakmark Funds. Here’s what the firm said:
“As for Ally Financial, fears of a recession drove the stock price down more than 20% for the period, but business fundamentals have remained strong and the shares now trade for just a mid-single-digit multiple of current earnings. We believe today’s price ignores the funding cost improvements and well-capitalized nature of Ally’s balance sheet. We continue to own both investments given their significant discounts to our estimates of business value.”
4. Splunk Inc. (NASDAQ:SPLK)
Number of Hedge Fund Holders: 47
Shares of Splunk Inc. slid over five percent in early trading on Thursday, October 6, after UBS analyst Karl Keirstead lowered his ratings for the software company from “Buy” to “Neutral.”
Referring to his recent round of industry checks, Keirstead said Splunk Inc. is facing multiple headwinds besides macro uncertainty. He also cut his price target for the California-based company from $125 per share to $86 per share.
Meanwhile, investment management firm Vulcan Value Partners also discussed Splunk Inc. in its second-quarter 2022 investor letter, stating:
“Splunk Inc. is a software company for managing and gaining insights from data. Despite being a material detractor during the quarter, Splunk reported better than expected revenue, margins and guidance. Revenue increased 34% and the company produced a 20% free cash flow margin. Additionally, Gary Steele started his position as the new CEO. Gary was the founder of Proofpoint and led that company for 20 years prior to selling it to Thoma Bravo for $12 billion last year.
We believe Splunk’s long-term prospects remain strong. As they have transitioned their customers to the cloud, the company is generating good free cash flow and its margins are increasing and have the potential to expand. The company has a solid competitive position, a large market, and we expect its growth to be strong and durable.”
3. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 58
Atlantic Equities reduced its ratings for Morgan Stanley from “Overweight” to “Neutral” on Wednesday, October 5. Analyst John Heagerty was moved by a slowdown in investment banking activity and dwindling equity markets.
Heagerty also cut his price target for Morgan Stanley from $95 per share to $85 per share. Morgan Stanley shares marginally moved down in the previous trading session following the downgrade.
Separately, asset management firm Matrix Asset Advisors also shared its views about Morgan Stanley in its second-quarter 2022 investor letter. Here’s what the firm said:
“Morgan Stanley (NYSE:MS) is one of the world’s leading investment banks and wealth management firms. As the company has grown its wealth management business its earnings have become more predictable and valuable. The management team is very shareholder-friendly, allocating funds not needed to grow the business to repurchase shares and raise their dividend. In late June, the company announced an 11% increase in its dividend and a $20 billion multi-year share repurchase program. The company’s annual dividend of $3.10 per share provides a current dividend of 3.7% at the June 30 closing price.”
2. Twitter, Inc. (NYSE:TWTR)
Number of Hedge Fund Holders: 69
Shares of Twitter, Inc. inched lower on Wednesday, October 5, after Vertical Group cut its ratings for the microblogging site from “Buy” to “Neutral,” citing its uncertain future.
Analysts Phil Leggiere was primarily moved by the lack of clarity around Twitter’s management and macroeconomic challenges. Leggiere thinks these factors are hindering the growth of Twitter, Inc..
Meanwhile, several news agencies reported that Twitter, Inc. might reach a deal with Elon Musk to end their legal row. Musk reportedly wants to proceed with his $44 billion buyout proposal if the social networking service drops its lawsuit against him.
1. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 72
Erste Group slashed its ratings for NIKE, Inc. from “Buy” to “Hold” on Wednesday, October 5. The research firm pointed towards the company’s increasing inventories, falling operating income and higher costs.
Earlier this week, Argus also downgraded NIKE, Inc. from “Buy” to “Hold.” Analyst John Staszak said the company is trimming prices to reduce inventory levels and the strategy is hurting its profit margins.
The latest downgrades came just days after NIKE, Inc. said its margins would likely stay under pressure in the remaining year.
You can also take a peek at 10 Best Nuclear Energy Stocks To Buy and 10 Best Cyclical Stocks for Inflation.
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