In this article, we will discuss the 10 stocks recently downgraded by analysts. If you want to see more such stocks on the list, you can directly visit Analysts Are Downgrading These 5 Stocks.
Fitch Ratings lowered the United States’ long-term foreign-currency issuer default rating from AAA to AA+ on August 1, citing anticipated fiscal deterioration over the next three years, weakening governance, and increasing overall debt burden. Fitch mentioned the ongoing pattern of debt-limit political conflicts and last-minute solutions that have eroded confidence in fiscal management. U.S. stock futures responded negatively to the downgrade, with Dow futures dropping around 100 points, reported CNBC. In May, Fitch had placed the nation’s AAA rating on negative watch due to the debt ceiling debate, and the recent downgrade referenced the recurring governance decline over the past two decades. The agency also emphasized the projected rise in the general government deficit, foreseeing it reaching 6.3% of GDP in 2023. Fitch highlighted the potential for economic challenges, including a possible “mild” recession in late 2023 and early 2024 due to factors like tightening credit conditions, weakened business investment, and slowing consumption. The White House contested the downgrade, asserting that the U.S. has achieved a robust economic recovery under President Biden. This downgrade echoes a previous instance in 2011 when Standard & Poor’s lowered the U.S. credit rating to AA+ from AAA, citing political risk. Global stock markets experienced a decline on August 2 in response to this downgrade of the US sovereign credit rating by Fitch Ratings, leading to a swift shift away from riskier assets. This development prompted a notable slump in European markets, resulting in the benchmark regional index registering its most significant decrease in nearly four weeks. In reflection of this sentiment, futures for the S&P 500 and Nasdaq 100 also dropped by over 1%, indicating a substantial potential decrease on Wall Street. This occurrence comes after a five-month period of upward momentum for US stocks.
On the banking side, the swift collapse of Silicon Valley Bank earlier this year revealed a concerning truth: certain U.S. banks aren’t adequately prepared to borrow from the Federal Reserve in times of need. This issue is particularly pronounced among smaller banks in the nation. For instance, Silicon Valley Bank’s downfall was partially attributed to its lack of readiness and failure to test its access to the “discount window,” which is the Federal Reserve’s channel for emergency loans. The fallout from Silicon Valley Bank’s situation highlighted the importance of being prepared to borrow from the Federal Reserve in times of financial distress. The process involves filing paperwork, collateral posting, and ideally, conducting regular trial runs. Although banks aren’t obligated to disclose whether they have taken the steps to gain access, central bank data indicates that many have not, particularly smaller banks. According to a report from Reuters, banks with larger assets have shown higher levels of engagement with the discount window, while smaller banks have demonstrated less engagement, raising concerns about their preparedness for emergencies. The Federal Reserve has been actively encouraging banks to be more proactive in their readiness for the discount window, emphasizing its role as a lifeline in times of crisis. Despite some reluctance and historical disincentives for borrowing, the focus is shifting towards preparedness, especially given the lessons learned from the COVID-19 pandemic and subsequent market turmoil. This push highlights the need for all banks to consider the discount window as a potential backup and be equipped to use it effectively when necessary.
As the Federal Reserve’s September meeting approaches, Wall Street economists are leaning towards the possibility of a pause in the central bank’s interest rate hike trajectory. Despite Federal Reserve Chair Jerome Powell maintaining the option for another rate increase, various indicators and economic signals appear to be aligning in a way that suggests a temporary halt in the rate-hiking cycle. Recent economic data and trends are contributing to this sentiment. Notably, there has been a decline in used-car prices and a moderation in rents, both of which are contributing factors in lowering inflationary pressures. Additionally, observations of consumer spending patterns indicate a moderation in growth, while signs of diminishing wage pressures provide further indications that the economy might not be signaling a need for immediate rate adjustments. According to Bloomberg, central bank policymakers have been vocal about their approach, indicating that they are awaiting incoming data to inform their decision-making process regarding potential rate increases. With the latest inflation reports unexpectedly showing a milder trend and a backdrop of economic indicators that suggest a more measured pace, there appears to be a consensus that there is little immediate urgency for a rate hike in the upcoming September meeting. In the midst of these considerations, the Federal Reserve is also keeping a watchful eye on other critical factors such as the dynamics of student loan repayment and the potential for a government shutdown. These variables, coupled with the broader economic landscape, are likely to shape the final decision on whether to pause or proceed with further interest rate increases.
On the stocks market front, notable stocks such as ZoomInfo Technologies Inc. (NASDAQ:ZI), The Estée Lauder Companies Inc. (NYSE:EL) and Canadian National Railway Company (NYSE:CNI) were downgraded by analysts, among many others. Check out the complete article to see some other stocks recently downgraded by analysts.
Photo by Adam Nowakowski on Unsplash
10. Bloomin’ Brands, Inc. (NASDAQ:BLMN)
Number of Hedge Fund Holders: 25
On August 1, William Blair analyst Sharon Zackfia lowered Bloomin’ Brands, Inc. (NASDAQ:BLMN) rating from “Outperform” to “Market Perform” following the Q2 report, signaling a shift in her perspective on the company’s future. The downgrade is attributed to two key factors: the impact of new Brazilian tax legislation and the challenging year-over-year comparisons. The latter presents a more difficult benchmark for assessing the company’s current performance against its previous successes. Looking ahead to 2024, Bloomin’ Brands, Inc. (NASDAQ:BLMN) is expected to encounter headwinds in its revenue growth. The forecast suggests that revenue growth will be stagnant, taking into account a substantial $30 million setback resulting from the Brazilian tax legislation. While the stock’s valuation holds appeal in the long term, Zackfia suggests that investors might find more promising growth opportunities elsewhere.
Furthermore, another potential obstacle looms on the horizon: the prospect of elevated beef costs in 2024. This could further impede the company’s ability to bolster its earnings growth. In essence, the decision to downgrade the company’s rating reflects a combination of regulatory challenges, comparative difficulties, and potential cost pressures that collectively influence Bloomin’ Brands, Inc. (NASDAQ:BLMN) trajectory moving forward.
09. Brown & Brown, Inc. (NYSE:BRO)
Number of Hedge Fund Holders: 25
Keefe Bruyette, on August 1, made noteworthy changes in its assessment of Brown & Brown, Inc. (NYSE:BRO), a company operating in the insurance sector. The firm has decided to lower its rating for Brown & Brown from the previously favorable “Outperform” to a more neutral “Market Perform” stance. In conjunction with this shift in rating, Keefe Bruyette has also revised its price target for Brown & Brown’s shares, raising it from $73 to $76. It’s worth highlighting that while Keefe Bruyette maintains an optimistic outlook regarding Brown & Brown, Inc. (NYSE:BRO) organic growth potential for the years 2023 and 2024, the decision to adjust the rating stems from a particular consideration. The company’s shares have exhibited a robust performance throughout the current year, especially when compared to the performance of its peers within the same industry. This strong showing has led Keefe Bruyette to perceive the shares as being reasonably valued at their current level.
In essence, Keefe Bruyette’s decision encapsulates a nuanced evaluation of Brown & Brown, Inc. (NYSE:BRO) current standing. While acknowledging the company’s potential for organic growth in the near future, the firm’s recalibration of the rating and price target underscores the significance of contextual factors such as the shares’ performance vis-à-vis industry peers. Much like ZoomInfo Technologies Inc. (NASDAQ:ZI), The Estée Lauder Companies Inc. (NYSE:EL), and Canadian National Railway Company (NYSE:CNI), Brown & Brown, Inc. (NYSE:BRO) is another prominent stock that has recently faced an analyst downgrade.
08. SoFi Technologies, Inc. (NASDAQ:SOFI)
Number of Hedge Fund Holders: 27
On August 1, Keefe Bruyette, took a significant step in its evaluation of SoFi Technologies, Inc. (NASDAQ:SOFI) by downgrading its rating from “Market Perform” to “Underperform.” Alongside this rating adjustment, the firm has also revised its price target for SoFi Technologies, Inc. (NASDAQ:SOFI), increasing it from $5.50 to $7.50. The rationale behind this decision is centered on a careful assessment of the company’s recent trajectory. SoFi Technologies has experienced an impressive rally, boasting a remarkable 142% increase in value since its mid-May low point. However, Keefe Bruyette points out that this surge has led to a valuation that appears to have exceeded its fundamental earnings projections. The firm conveyed this perspective to investors through a research note.
Looking forward, Keefe Bruyette has offered insights into its expectations for SoFi Technologies, Inc. (NASDAQ:SOFI) profitability in the coming year. The analysis suggests that the company’s profitability is anticipated to be, at best, modest in 2024. Moreover, the rate of growth is projected to moderate as the consumption of capital needs to slow down. Ultimately, Keefe Bruyette’s assessment suggests that the current price of SoFi Technologies, Inc. (NASDAQ:SOFI) shares does not favorably align with the potential for upside gains. Rather, the firm contends that the balance between potential gains and potential losses at the current price level leans toward the downside.
07. Eastman Chemical Company (NYSE:EMN)
Number of Hedge Fund Holders: 28
On August 1, Piper Sandler made a strategic shift in its assessment of Eastman Chemical Company (NYSE:EMN) by downgrading the company’s rating from “Overweight” to “Neutral.” This adjustment was accompanied by an unchanged price target of $96. The rationale behind this decision lies in the challenges that Eastman Chemical Company (NYSE:EMN) has been facing in its primary markets. These challenges, referred to as “headwinds,” have proven to be more formidable and enduring than initially anticipated. Consequently, the company’s sales, profit margins, and prices across a majority of its reporting segments have been negatively impacted. Notably, the Fibers segment remains an exception to this trend. Piper Sandler conveyed to investors that the ongoing market conditions have compelled Eastman Chemical Company (NYSE:EMN) to take corrective measures to address its inventory situation. This highlights the company’s effort to navigate through the current market environment in a balanced manner.
Moreover, Piper Sandler’s decision to downgrade Eastman Chemical Company (NYSE:EMN) is also driven by its assessment of potential investment opportunities in comparison to other options within its coverage. The firm sees more promising potential for positive returns in other areas, leading to the decision to adjust the rating downward. In essence, Piper Sandler’s revised assessment of Eastman Chemical Company (NYSE:EMN) is grounded in the recognition of significant challenges faced by the company in its key markets, along with the need for corrective actions and the identification of potentially more favorable investment opportunities elsewhere.
06. Chinook Therapeutics, Inc. (NASDAQ:KDNY)
Number of Hedge Fund Holders: 31
Headquartered in Seattle, Washington, Chinook Therapeutics Inc. (NASDAQ:KDNY) is an American, clinical-stage, biotechnology company which specializes in the development of precision medications for diseases affecting the kidney. On August 1, Wells Fargo analyst Mohit Bansal undertook a noteworthy reassessment of Chinook Therapeutics, Inc. (NASDAQ:KDNY), a biopharmaceutical company. In this shift, Bansal has made a decision to downgrade the company’s rating from “Overweight” to “Equalweight,” signaling a shift in his prior outlook on the company’s investment potential. This adjustment is paired with a corresponding modification in the price target for Chinook Therapeutics, Inc. (NASDAQ:KDNY) shares, which has been adjusted upwards from the previous $30 to a new target of $40.
Just like ZoomInfo Technologies Inc. (NASDAQ:ZI), The Estée Lauder Companies Inc. (NYSE:EL) and Canadian National Railway Company (NYSE:CNI), Chinook Therapeutics, Inc. (NASDAQ:KDNY) is yet another notable stock that received a downgrade from analysts.
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Disclosure: None. Analysts Are Downgrading These 10 Stocks is originally published on Insider Monkey.
