Why Are These Four Stocks Plunging On Thursday?

At a time when the broader market is off by under 1%, shares of Flowers Foods, Inc. (NYSE:FLO), Energizer Holdings Inc (NYSE:ENR) , KLX Inc (NASDAQ:KLXI), and MAXIMUS, Inc. (NYSE:MMS) are off by substantially more. In this article, we examine why investors are selling and analyze what hedge funds think of each stock.

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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 36 month period beginning from September 2012 (see the details here).

First up, shares of Flowers Foods, Inc. (NYSE:FLO) are down by 10% despite the company reporting a strong third quarter. For its recent reporting period, Flower Foods earned $0.23 per share on revenue of $885.3 million, meeting EPS estimates and exceeding revenue estimates by $11.98 million. Sales increased 4.8% year-over-year while adjusted EBITDA rose 6.1% to $105 million. Weaker-than-expected margin guidance could have something to do with the stock’s softness, however, as management expects EPS of $0.96-0.98 for full year 2015, versus the consensus of $1 per share. Hedge funds are indifferent on Flowers Foods, Inc. (NYSE:FLO), as only 14 funds out of our database of around 730 elite funds reported stakes worth $165.55 million (representing 3.70% of the float) at the end of June,

Second, Energizer Holdings Inc (NYSE:ENR) shares have declined by 10.5% by midday trading after the company’s organic growth fell short of estimates. Because of the strong dollar and a weaker macro-economic climate, Energizer Holding’s organic sales retreated 3.6% year-over-year in the fourth fiscal quarter, causing the company to miss analyst EPS estimates by $0.01, by posting EPS of $0.69. Guidance is lackluster, with management expecting organic sales to be the same or down low single digits in fiscal year 2016. Because of the Thursday’s fall, Energizer Holdings Inc (NYSE:ENR) stock is roughly flat year-to-date.  With a dividend yield of 2.5% and forward P/E of 16, shares of Energizer Holdings might not have much more room to fall before the stock becomes a value play, however.

On the next page, we examine why KLX Inc and MAXIMUS shares are off.

KLX Inc (NASDAQ:KLXI) shares lost 14% in afternoon trading after the company announced it will take a non-cash, post-tax asset impairment charge of $435 million due to weakness in the company’s oil services division. Because crude prices have more than halved in the past 18 months, E&P companies are spending less in capital expenditures. The lower capital expenditures are negatively affecting KLX’s energy services division’s pricing and volumes. Given the impairment charge is a non-cash expense and KLX’s forward P/E of under 14, the market could be over-reacting on this one, however. Many investors believe crude prices will bounce back as low crude prices cure low crude prices. Seth Klarman’s Baupost Group owned 1.5 million shares at the end of June.

In other news, shares of MAXIMUS, Inc. (NYSE:MMS), a leading provider of government services, are off by 20.5% after the company reported mixed earnings. For the fourth quarter of fiscal 2015, MAXIMUS reported earnings of $0.53 per share on revenues of $578.68 million, versus analyst expectations of $0.52 per share on revenues of over $590 million. The EPS guidance is a bit lower than expected, with the management anticipating GAAP diluted EPS of between $2.40 and $2.70 for 2016 versus the previous guidance of  $2.85-$3.05. The company still expects between $2.4 billion to $2.5 billion in revenue for fiscal 2016. Hedge funds are ambivalent on MAXIMUS, Inc. (NYSE:MMS). According to our data, nine funds reported stakes worth $190.14 million (representing 4.40% of the float) as of the end of the second quarter.

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