Apollo Education, Cabelas, PulteGroup: What Is Happening To These Falling Stocks?

Shares of Apollo Education Group Inc (NASDAQ:APOL), Cabelas Inc (NYSE:CAB), Westinghouse Air Brake Technologies Corp (NYSE:WAB), and PulteGroup, Inc. (NYSE:PHM) are falling because of various negative catalysts. Given the strong volume of their moves, let’s find out what has spooked investors and led to them selling off shares at a discount.

First a little about Insider Monkey. We are a finance site that tracks hedge fund sentiment. But why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37-month period beginning from September 2012 (see the details here).

Apollo Education Group Inc (NASDAQ:APOL) is off by 27.45% after reporting fiscal fourth quarter 2015 earnings of $0.17 per share on revenues of $600.29 million, missing estimates by $0.01 per share and $20.68 million, respectively. Net revenue for fiscal year 2015 was $2.6 billion, down from $3 billion in fiscal year 2014, while income from continuing operations for the 2015 fiscal year was $0.49 per share, well off from $2.01 per share in fiscal year 2014. Demand for Apollo Education Group Inc (NASDAQ:APOL)’s online University of Phoenix is soft as the U.S economy strengthens. Fewer people are pursuing online degrees when they can find decent-paying jobs elsewhere. Some investors think the future of online education will be more open-sourced and free like MIT’s Opencourseware although other investors believe having an accredited degree is better than just having the knowledge and skills. If the future leans more towards the former, Apollo Education will not be worth much, although if it is the latter and management executes, Apollo Education could be a good stock to hold.

Our data shows hedge funds are bullish on Apollo Education Group Inc (NASDAQ:APOL). A total of 27 funds reported stakes in the company worth $353.79 million, totaling 25.5% of its float, in the previous round of 13F filings, up from 24 funds and $322.58 million respectively a quarter earlier. Larry Robbins‘ Glenview Capital increased its position by 41% to 7.58 million shares while Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC raised its stake by 87% to 6.5 million shares.

Cabelas Inc (NYSE:CAB) is off by 15.14% after the company reported third quarter earnings of $0.71 per share on revenues of $926.52 million, missing earnings expectations by $0.02 per share and revenue expectations by $44.91 million. U.S comparable-store sales declined by 3.3% year-over-year, while consolidated comparable-store sales decreased by 4.2%. Guidance is a bit soft with management expecting high single-digit growth in revenue and flat non-GAAP earnings per diluted share for fiscal year 2015 compared to fiscal year 2014. Beginning in the third quarter, management embarked on a multi-year restructuring project that they hope will reduce operating expenses as a percentage of revenue by 0.75 to 1.5 percentage points over the next three years. Management will also reduce working capital and sell non-core assets to finance a share repurchase program of $500 million. Given the forward P/E of 11.9, the stock looks cheap, although shareholders will have to trust that management will turn around the declining comparable-store sales in addition to effectively cutting expenses.

On the next page, we analyze why Westinghouse Air Brake and PulteGroup are also sliding today.

Westinghouse Air Brake Technologies Corp (NYSE:WAB) is off by 4.2% after reporting third quarter earnings of $1.04 per share on revenue of $810 million. Earnings were in-line with estimates while revenue missed by $36.71 million. Revenue was soft because of weak global economic activity while earnings were in-line because management did a good job controlling costs. Income from operations accounted for a record 18.8% of sales, versus 17.1% of sales a year earlier. Westinghouse Air Brake Technologies Corp (NYSE:WAB) repurchased 237,027 shares in the quarter and still has around $151 million left from the board-approved repurchase authorization. Management reaffirmed 2015 earnings guidance of $4.10 per share along with revenue growth of 9% for the full year. All-in-all, not a bad quarter. If crude prices rise, rail activity will strengthen and Westinghouse Air Brake Technologies Corp (NYSE:WAB) shares will rally.  The company could pay a higher dividend however.

PulteGroup, Inc. (NYSE:PHM)‘s shares have fallen by 6.68% after the home builder reported third quarter earnings of $0.33 per share on revenues of $1.51 billion, missing estimates by $0.10 per share and $260 million, respectively. Analysts had high expectations after the Wall Street Journal reported U.S home builder confidence was at its highest level since November 2005 and that the U.S economy remained strong. Apparently, the expectations were too high, as PulteGroup’s ASP inched up by just 1% to $336,000 while gross margin increased by 0.7 percentage points to 23.6%. Total backlog was $3.1 billion, up by 18% year-over-year while the company repurchased 5.9 million shares.

Of the 730 elite funds we track, 27 owned $542.69 million of the company’s shares (representing 7.40% of the float) on June 30, versus 29 funds holding $773.64 million worth of stock  on March 31. George Soros‘ Soros Fund Management owned 3.17 million shares at the end of June.

Disclosure: None