Analysts Are Downgrading These 5 Stocks After Weak Earnings Reports

In this article, we will discuss 5 stocks analysts are downgrading after weak earnings reports. To take a look at some more stocks that have been downgraded, go to Analysts Are Downgrading These 10 Stocks After Weak Earnings Reports.

5. SVB Financial Group (NASDAQ:SIVB)

Number of Hedge Fund Holders: 34

SVB Financial Group (NASDAQ:SIVB) is a Santa Clara, California-based high-tech commercial bank.

The bank was forced to slash down its deposit, net interest income, and loan growth guidance for 2022 following the weak Q2 2022 results on July 19. The regional bank is forecasting average loan balances to grow in the high-twenties as compared to prior guidance of mid-thirties. Meanwhile, SVB Financial Group (NASDAQ:SIVB) also slashed its deposit growth guidance. The net interest income growth forecast was lowered from the low fifties to the mid-forties figure.

Following these negative developments, Christopher McGratty at Keefe Bruyette downgraded SVB Financial Group (NASDAQ:SIVB) stock from an Outperform to a Market Perform rating on July 22. The analyst also lowered the target price by 25% to $450. The analyst sees limited earnings visibility, which makes it challenging to come up with a constructive call on SVB Financial Group (NASDAQ:SIVB) stock.

SVB Financial Group (NASDAQ:SIVB) was discussed in the Q1 2022 investor letter of Diamond Hill Capital. Here’s what the firm said:

“Other bottom contributors included SVB Financial Group (NASDAQ:SIVB). Innovation-economy focused bank SVB Financial Group was doubly punished as financials traded down and the sell-off in technology raised concerns about slower growth for this niche bank in the near term.”

As per Insider Monkey’s database, 34 funds held a stake in SVB Financial Group (NASDAQ:SIVB) at the end of Q1 2022, down from 47 in the preceding quarter.

4. Ally Financial Inc. (NYSE:ALLY)

Number of Hedge Fund Holders: 49

Ally Financial Inc. (NYSE:ALLY) is a Detroit, Michigan-based digital financial services corporation.

The company missed its Q2 2022 EPS estimates due to higher expenses and a rise in the provision for credit losses due to an expectation of higher delinquencies. Adjusted EPS plummeted from $2.03 in Q1 2022 and $2.33 during the same quarter last year to $1.76 and missed the consensus estimate of $1.87. New consumer auto loan origination of $13.3 billion was at the highest level since 2006.

Following the results, John Pancari at Evercore ISI downgraded Ally Financial Inc. (NYSE:ALLY) stock from an Outperform to an In-Line rating with a price target of $36 on July 19. The analyst sees limited upside to the stock as the earnings will be impacted by auto credit normalization. Pancari also observed a rise in auto loan delinquencies on a YoY basis during Q1 and Q2.

Here’s what Oakmark Funds said about Ally Financial Inc. (NYSE:ALLY) in its Q2 2022 investor letter:

“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.”

Ally Financial Inc. (NYSE:ALLY) was held by 49 hedge funds as of Q1 2022.

3. Snap Inc. (NYSE:SNAP)

Number of Hedge Fund Holders: 54

Snap Inc. (NYSE:SNAP) is a Santa Monica, California-based social media company that posted its Q2 2022 results on July 21.

Snap Inc. (NYSE:SNAP) revealed that companies are facing supply chain challenges, a shortage of labor, and rising costs, which caused a significant reduction in their advertising revenue. Snap Inc. (NYSE:SNAP) revealed that it would slow down recruitment and look for new ways to generate revenues to grow at a handsome pace.

The company’s Q2 revenue increased by 13% YoY to $1.11 billion but missed consensus estimates of $1.14 billion by $30 million. Daily active users were reported at 347 million and crossed the analysts’ estimate of 344 million. Snap Inc. (NYSE:SNAP) refrained from providing revenue and EBITDA guidance for Q3 2022 amidst the challenging environment. Following these developments, Eric Sheridan at Goldman Sachs downgraded Snap Inc. (NYSE:SNAP) stock from a Buy to a Neutral rating and lowered the target price from $25 to $12 on July 22. The analyst sees the quarterly result as “broadly negative.”

Baron Funds shared its outlook on Snap Inc. (NYSE:SNAP) in its Q4 2021 investor letter. Here’s what the firm said:

Snap Inc. is the leading social network among teens and young adults in North America and a growing number of overseas markets, including Western Europe and India. Shares fell this quarter on a greater-thananticipated impact from Apple’s new privacy changes for iOS mobile devices. These changes made it more difficult for Snapchat to measure the effectiveness of ads shown on its platform. We believe this is a near-term, industry-wide issue for which Snap is already developing a solution. Longer term, we continue to view Snap favorably as the company sustains its rapid pace of product innovation and expands its premium partnerships with advertisers.”

2. Delta Air Lines, Inc. (NYSE:DAL)

Number of Hedge Fund Holders: 55

Delta Air Lines, Inc. (NYSE:DAL) is an Atlanta, Georgia-based airline that reported its Q2 2022 results on July 13.

Delta Air Lines, Inc. (NYSE:DAL) saw its revenue increase by 93.5% YoY to $13.8 billion and surpassed the consensus estimate of $13.4 billion as airlines across the US had the best summer in the past three years. However, the company missed bottom-line estimates due to rising costs that are expected to remain inflated during the second half of 2022. The airline industry is also facing an intense shortage of labor. Delta Air Lines, Inc. (NYSE:DAL) was forced to cancel 3.5% of its flights in June. Although the company has achieved 95% of its pre-pandemic employee headcount, Delta Air Lines, Inc. (NYSE:DAL) is still short-staffed due to training backlogs.

Following the earnings report, Delta Air Lines, Inc. (NYSE:DAL) stock was downgraded from a Buy to a Hold rating by John Staszak at Argus on July 15 with no price target. The analyst cited earnings miss, reduction in capacity, and shortage of staff as the key reasons for the downgrade.

Miller Value Partners presented its outlook on Delta Air Lines, Inc. (NYSE:DAL) in its Q4 2021 investor letter. Here’s what the firm said:

“We’ve healed greatly from the worst days of the pandemic, and we expect that to continue going forward. We see the greatest disconnects between current market expectations and 18-months-out fundamentals in names like Delta Airlines (DAL).

Delta is a quality airline with shareholder-friendly management. It was the only one not to issue equity during the pandemic. It was also the only profitable airline in the second half of 2021. It generated positive operating cash flow despite business and international travel weakness. When earnings finally normalize, which the company doesn’t expect until 2024, it should earn more than $7/share. After bouncing significantly off the lows, DAL currently trades at $41.99 or less than 6x those earnings.

We’ve believed for over a decade that the US airlines are better businesses than they’ve historically been. Consolidation led to a more rational industry. These companies shifted from growth at any cost to a return on capital mindset, the importance of which can’t be understated. We previously believed a recession would finally demonstrate the group’s improved resilience.

Unfortunately, a global pandemic did exactly the opposite. Buffett, who bought the airlines after being a critic of their historical capital destruction, sold his airlines early in the pandemic due to the risk. The government offered support to the industry due to their national strategic importance, which we believe offers protection against another worst-case scenario. We still believe Delta is a better business than the market gives it credit for and one whose prospects will be materially different 18 months from now. As patient investors, you can expect us to hold tight.”

Delta Air Lines, Inc. (NYSE:DAL) was held by 15 hedge funds as of Q1 2022.

1. AT&T Inc. (NYSE:T)

Number of Hedge Fund Holders: 74

AT&T Inc. (NYSE:T) is a Dallas, Texas-based telecom operator that reported its Q2 2022 results on July 21.

Although AT&T Inc. (NYSE:T) reported upbeat earnings but the reduction in free cash flow guidance heavily weighed on the stock. The company lowered its 2022 free cash flow (FCF) guidance from $16 billion to $14 billion as the US consumers are taking longer to settle their bills, and the cost of acquiring a new customer is constantly rising and putting the business under pressure. AT&T Inc. (NYSE:T) intends to generate $10 billion in FCF during the second half of the year to achieve its 2022 FCF guidance.

Following the results, Kannan Venkateshwar at Barclays downgraded AT&T Inc. (NYSE:T) stock from an Overweight to an Equal Weight rating and slashed the target price from $22 to $20. The analyst highlighted that the management’s commentary about the coming quarters would raise concern across the telecom sector.

Of the 912 hedge funds in Insider Monkey’s database, 74 funds held a stake in AT&T Inc. (NYSE:T) as of Q1 2022, up from 70 in the previous quarter.

You can also take a peek at the 10 Hedge Funds That the Economic Recession is Crushing and 10 Semiconductor Stocks that Analysts Are Slashing Price Targets Of.