In this article, we will take a look at the 10 stocks that were recently downgraded by analysts.
Despite a strong upswing seen recently in late-July, U.S. stocks were subdued at the start of August, amid a somewhat cautious mood on Wall Street. After all the trading session’s gyrations, the S&P 500 retreated 0.28% to 4,119, stalling near a key technical resistance zone and ending a three-day winning streak. The Nasdaq 100, meanwhile, edged down 0.06% to 12,941, but the pullback in Treasury yields limited weakness in the technology sector.
The Wall Street consensus on July 8 was that most companies were managing to squeeze out substantial profits on robust revenues. The average estimate for S&P 500 companies, according to IBES data from Refinitiv, suggested that the consensus revenue estimate should be 10.6% higher than in the second quarter of 2021 while earnings should soar 5.7% higher. However, a closer look into the reports suggests that energy companies were expected to provide most of those earnings. Exclude results from energy companies and the picture immediately darkens, with revenues expected to rise only 6.6% from the same quarter in 2021, while earnings would fall by 3%.
With these developments in mind, a number of analysts have been busy updating their ratings to reflect the changing economic environment. Analysts usually evaluate public financial reports, conference calls and market surveys before recommending investors to buy or sell a stock. Based on the catalysts mentioned, notable companies recently received downgrades from analysts, including Kohl’s Corporation (NYSE:KSS), Snowflake Inc. (NYSE:SNOW), and Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), among others listed below.
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Our Methodology
With this context in mind, we will be looking at 10 notable companies analysts are downgrading. We will dissect the reasons why these companies were downgraded and outline the impact of macroeconomic headwinds on their business fundamentals. We have ranked these stocks according to the number of hedge funds having a stake in them as of Q1 2022.
Analysts Are Downgrading These 10 Stocks
10. XPeng Inc. (NYSE:XPEV)
Number Of Hedge Fund Holders: 24
XPeng Inc. (NYSE:XPEV) is a Chinese electric vehicle manufacturer that is headquartered in Guangzhou, with offices in Mountain View, California. The company manufactures and designs smart electric vehicles and also offers maintenance, super charging, vehicle leasing, insurance, ride-hailing, technical support, automotive loan referral and auto financing. XPeng Inc. recorded 15,295 Smart EV deliveries in June, representing a 133% increase year-over-year, and a 51% increase over May. The company delivered 34,422 Smart EVs in total for the second quarter, ranking first among emerging auto brands in China for the fourth consecutive quarter.
On August 3, Macquarie analyst Erica Chen downgraded XPeng Inc. to Neutral from Outperform with a $25 price target after cutting her sales volume and revenue estimates for the fiscal years 2022-24 to reflect slower BEV sales growth in the midsize high-tier market. The analyst expects XPeng Inc.’s market share in China’s NEV market to remain at 2.9% for FY22, and then gradually rise to 3.3% and 3.5% for FY23 and FY24, respectively.
Among the hedge funds tracked by Insider Monkey, 26 funds were bullish on XPeng Inc. at the conclusion of Q1 2022, compared to 29 funds in the previous quarter. Chase Coleman’s Tiger Global Management is the leading shareholder of the company, with 13.7 million shares worth $378.6 million.
Similar to Kohl’s Corporation, Snowflake Inc., and Horizon Therapeutics Public Limited Company, XPeng Inc. is a notable stock that was recently downgraded by analysts.
9. Semtech Corporation (NASDAQ:SMTC)
Number Of Hedge Fund Holders: 31
Semtech Corporation (NASDAQ:SMTC) is a supplier of analog and mixed-signal semiconductors and advanced algorithms for infrastructure, high-end consumer markets and industrial equipment.
Needham analyst Quinn Bolton downgraded Semtech Corporation to Hold from Buy on August 3. Although the analyst states that the company’s Sierra Wireless acquisition broadens its IoT hardware and service/software product portfolio, it also raises several questions regarding the company’s core business and balance sheets. According to the analyst there are some factors that investors may not like about the deal.
As of March 31, Israel Englander’s Millennium Management is the largest shareholder in Semtech Corporation and has stakes worth $109.29 million in the company. 31 elite hedge funds were long Semtech Corporation with stakes worth $423.45 million. This is compared to 26 positions in the preceding quarter with stakes of $307.75 million.
8. Incyte Corporation (NASDAQ:INCY)
Number Of Hedge Fund Holders: 34
Incyte Corporation (NASDAQ:INCY) is an American multinational pharmaceutical company with headquarters in Wilmington, Delaware, and Morges, Switzerland. The company was created in 2002 through the merger of Incyte Pharmaceuticals, founded in Palo Alto, California in 1991 and Incyte Genomics, Inc. of Delaware. Earlier this July, Incyte Corporation announced that the FDA has approved its Opzelura cream 1.5% for the topical treatment of nonsegmental vitiligo in adult and pediatric patients 12 years of age and older. Opzelura is the first and only FDA-approved treatment for repigmentation in patients with vitiligo, and the only topical formulation of a Janus kinase, or JAK, inhibitor approved in the United States.
Evercore ISI analyst Gavin Clark-Gartner downgraded Incyte Corporation to In-Line from Outperform on August 3, with a price target of $78, down from $90. According to the analyst, the company’s Q2 report “was generally in-line with expectations,” but he has extended his model out to 2035 to better capture the loss of exclusivity events on the horizon.
Julian Baker and Felix Baker’s Baker Bros. Advisors was Incyte Corporation’s largest investor tracked by our database, owning a $2.87 billion stake that consisted of 36.15 million shares. Overall, 34 hedge funds reported owning stakes in Incyte Corporation as of the first quarter of 2022.
7. Teladoc Health, Inc. (NYSE:TDOC)
Number Of Hedge Fund Holders: 36
Teladoc Health, Inc. (NYSE:TDOC) is a multinational telemedicine and virtual healthcare company that provides telehealth, medical opinions, AI and analytics, and licensable platform services.
On August 2, Berenberg analyst Dev Weerasuriya downgraded Teladoc Health, Inc. to Hold from Buy with a price target of $35, down from $42. The analyst cites the company’s “underwhelming execution” and a lack of clear catalysts over the next 12 months for the downgrade. Based on Weerasuriya’s remarks, Teladoc’s Q2 sales and adjusted EBITDA beat consensus, but margins were strained by a deteriorating yield on customer acquisition costs for BettterHelp, something that the company expects will push fiscal 2022 results toward the lower end of the guidance range. According to the analyst, a chronic care pipeline “that is slow to mature,” a higher-than-anticipated strain on BettterHelp performance due to consumer weakness, and the lack of visibility into the timing of a fully integrated whole-person care model “give us little to be enthusiastic about over the next 12 months.”
According to Insider Monkey’s database, Teladoc Health, Inc. was spotted on 36 investment portfolios by the end of the first quarter of 2022. The total stakes of these funds in the company amounted to approximately $1.96 billion. Catherine D. Wood’s ARK Investment Management is the most prominent investor in Teladoc Health, Inc. with stakes worth approximately $1.4 billion in the company.
Here is what Greenhaven Road Capital has to say about Teladoc Health, Inc. in its Q1 2022 investor letter:
“Teladoc is the largest telehealth provider in the US and has recently begun to expand internationally. TDOC’s platform enables an ever-expanding list of patient-doctor interactions (including those for primary health care, mental health issues and chronic condition management) to transition from an on-site visit to one that can be done remotely with full video- based interaction. TDOC provides its platform of services on both a business-to-business and direct-to-consumer basis, through monthly subscription-based relationships. For its core business-to-business clients, the company contracts with a wide range of entities, including large scale employers (the company currently contracts with over 50% of the Fortune 500), health plans, health systems, and medical insurance companies, which currently cover more than 50 million members. For these customers, the company provides a win-win-win, as patients spend no time traveling and less time waiting, doctors are more efficient seeing more patients in less time, and payers (employers and plan sponsors) save money while being able to offer a highly popular additional benefit for their employees. This B to B market is projected to be a +$100 billion market opportunity and TDOC is the clear global market leader. For its direct-to- consumer clients, the company provides a growing suite of services for individuals to have affordable access to on-demand and scheduled medical services, for which their current insurance does not provide reimbursement (such as extended mental health counseling).
Although the company has been growing steadily for well over a decade, the business has transformed over the past few years as the COVID pandemic caused a significant increase in the demand for virtual healthcare. In addition, the company’s 2020 acquisitions of Livongo, the leader in virtual chronic condition management, and InTouch, a competitive telehealth platform, materially broadened the company’s product offerings. At its recent analyst day, management guided to 25-30% top line growth for each of the next three years, exiting 2024 with more than $4 billion in annual revenue. The company also anticipates expanding margins by 100-150 basis points per year in each of the next three years, while still accelerating its investments in marketing and R&D. As with many of our recent purchases, we took advantage of the decline in the company’s shares (down a breathtaking 70% from its 2021 high of almost $300 per share) to establish a small position in Teladoc.”
6. Kohl’s Corporation (NYSE:KSS)
Number Of Hedge Fund Holders: 42
Kohl’s Corporation operates as the largest department store chain in the United States, with 1,162 locations in almost every state. The company offers branded apparel, footwear, accessories, beauty, and home products through its stores and website.
Earlier this July, Kohl’s Corporation announced the expansion of Kohl’s Media Network, or KMN, the company’s in-house retail media agency, to further the company’s advertising opportunities and provide brands, vendors and partners an extensive portfolio of omnichannel media services.
On August 4, Cowen analyst Oliver Chen downgraded Kohl’s Corporation to Market Perform from Outperform with a price target of $35, down from $60. The analyst believes that the company is “vulnerable” to the pressure the middle income consumer is experiencing, which may drive less visibility into it achieving its medium-term target of 7%-8% EBIT margin. Chen adds that Kohl’s shares could be range bound as investors wait and see for traction within the women’s and kid’s categories, its expense leverage, inventory rationalization, and merchandise margin resilience.
Out of all the hedge funds tracked by Insider Monkey, 42 held positions in Kohl’s Corporation with a combined value of $789.3 million. This is compared to 34 hedge funds in the preceding quarter, with $707 million worth of stakes. Jeffrey Smith’s Starboard Value LP is a notable investor in Kohl’s Corporation, and ranks as its biggest shareholder with 3.3 million shares valued at $201.4 million.
In addition to, Snowflake Inc., Horizon Therapeutics Public Limited Company, and Intel Corporation (NYSE:INTC), Kohl’s Corporation also failed to impress analysts.
5. Farfetch Limited (NYSE:FTCH)
Number Of Hedge Fund Holders: 45
Founded in 2007, Farfetch Limited (NYSE:FTCH) is a British-Portuguese online luxury fashion retail platform that provides clothes, shoes, accessories, and jewelry from over 700 global brands. The company also offers a mobile application that can be accessed in multiple languages.
On August 2, Cowen analyst Oliver Chen downgraded Farfetch Limited to Market Perform from Outperform with a price target of $9, down from $11. Although the analyst sees the stock’s current valuation as fair, he also believes that there is a lack of upside to estimates as the company works on profitability and customer retention. He adds that Farfetch Limited seems to be facing headwinds from both China and Russia, while navigating a promotional environment.
Among the hedge funds tracked by Insider Monkey, 45 funds were long Farfetch Limited at the end of Q1 2022, compared to 47 funds in the previous quarter. Stephen Mandel’s Lone Pine Capital is the biggest stakeholder of the company, with 17.20 million shares worth $260 million.
Here is what Polen U.S. Small Company Growth Fund has to say about Farfetch Limited in its Q1 2022 investor letter:
“We also initiated a position in global luxury fashion e-commerce marketplace Farfetch in the first quarter and took advantage of meaningful weakness in the company’s share price during the period. Farfetch previously had too large a market cap for the Portfolio, but it has since moved to a level where it’s appropriate to own it – both in this Portfolio and in our smid-cap strategy. The company’s fundamentals remain attractive as indicated by the compelling results Farfetch reported in February.
The company remains an early mover with “the world’s only truly global marketplace for luxury at scale”. Farfetch has broader reach around the world with a diversity of brands that is much larger than its competitors. Many of the items it sells are exclusive. Our research shows that its brand assortment, brand image, geographic breadth, an inventory-light business model, a more compelling offering for luxury partners, and artificial intelligence are all competitive edges for the company. We believe Farfetch is well-positioned for the continued market share shift from offline to online in this category. The personal luxury goods market has trailed other categories in online penetration, but consumer behaviors and preferences shifted as a result of the pandemic creating more comfort with purchasing goods like this online. Changed behavior and the general shift to a higher portion of Millennial and Gen Z luxury shoppers supports this continued shift as does the growth in emerging market demand.”
4. Caterpillar Inc. (NYSE:CAT)
Number Of Hedge Fund Holders: 54
One of the world’s largest construction-equipment manufacturers, Caterpillar Inc. (NYSE:CAT) is an American Fortune 100 corporation that manufactures and sells construction and mining equipment, diesel and natural gas engines, as well as industrial gas turbines and diesel-electric locomotives.
Bernstein analyst Chad Dillard downgraded Caterpillar Inc. to Market Perform from Outperform with a $195 price target on August 3. According to the analyst, the stock brings the risk of negative earnings revisions to his 2023 and 2024 estimates of 16% and 39%, respectively. He adds that “several signs point to order growth markedly slowing” in the second half of 2022 and that the company is “too reliant in the current environment on pricing to drive growth.”
According to the Insider Monkey database, 54 hedge funds had a combined value of over $4 billion in Caterpillar Inc. in Q1 2022. Bill and Melinda Gates Foundation Trust held the most prominent stake, with 7.35 million shares of the company worth $1.638 billion.
Here is what Diamond Hill Large Cap Concentrated Fund has to say about Caterpillar Inc. in its Q1 2022 investor letter:
“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
3. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP)
Number Of Hedge Fund Holders: 56
Horizon Therapeutics Public Limited Company is a biopharmaceutical company engaged in the research, development, and marketing of of medicines for rheumatic and other rare diseases.
On August 4, UBS analyst Ashwani Verma downgraded Horizon Therapeutics Public Limited Company to Neutral from Buy with a price target of $71, down from $137, following its Q2 earnings miss and a cut in guidance. The analyst believes that the outlook provided by company on its Tepezza product appears to be difficult to achieve as the company’s commentary implies that the bulk of its early Tepezza launch success was due to a ‘low-hanging fruit’ in a new market. In the future, its growth is likely to be moderate.
According to Insider Monkey’s database, 56 hedge funds held stakes in Horizon Therapeutics Public Limited Company at the end of Q1 2022, compared to 58 funds in the preceding quarter. Kurt Von Emster’s VenBio Select Advisor is the biggest stakeholder of the company, with 6.5 million shares worth $683.8 million.
Here is what Carillon Tower Advisers had to say about Horizon Therapeutics Public Limited Company in their Q1 2021 investor letter:
“Horizon Therapeutics is a biopharmaceutical company whose primary focus is research, development, and marketing of late-stage pharmaceutical products. After experiencing some unfortunate manufacturing hiccups in the later stages of 2020 for its key product Tepezza, which is used in the treatment of thyroid eye disease, the company recently received positive news that should relieve their supply issues going forward. With manufacturing of Tepezza back online after being forced to halt due to Operation Warp Speed’s COVID-19 vaccine production orders, Horizon expects patient treatments to resume in mid-April.”
2. Intel Corporation (NASDAQ:INTC)
Number Of Hedge Fund Holders: 76
On August 2, DZ Bank analyst Ingo Wermann downgraded Intel Corporation to Sell from Hold with a $30 price target. In addition, Moody’s rating outlook for Intel Corporation and Altera was changed to negative from stable at the beginning of August, reflecting the company’s “ongoing challenges to consistently execute on its manufacturing and product development in the face of a weakening macro environment, strong competitive challenges, and supply chain disruptions.”
Based on the data tracked by Insider Monkey, 76 hedge funds were bullish on Intel Corporation in the first quarter of 2022. Baupost Group was the leading stakeholder in Intel Corporation as of Q1 of 2022, with an investment worth $822 million.
Baron Funds, an investment management firm, mentioned Intel Corporation in its first-quarter 2022 investor letter. Here is what they said:
“Intel Corporation capital spending process is guided by a process they appropriately named “copy exactly.” This means that they attempt to “copy exactly” what they have already built and attempt to improve tried and true processes iteratively.”
1. Snowflake Inc. (NYSE:SNOW)
Number Of Hedge Fund Holders: 81
BTIG analyst Gray Powell downgraded Snowflake Inc. to Neutral from Buy without a price target on August 2. According to the analyst, his latest field surveys on Snowflake Inc. “downticked,” indicating the potential for product revenue growth to slow in the coming quarters. Although the analyst sees a balanced risk/reward for Snowflake shares, he adds that feedback was “not nearly as good as 6 – 12 months ago as customers are becoming increasingly concerned about a weakening economic environment.”
At the close of Q1 2022, 81 hedge funds were eager on Snowflake Inc. and held stakes worth $9.73 billion in the company. This is compared to 84 positions in the previous quarter with stakes worth $14.56 billion. Brad Gerstner’s Altimeter Capital Management is the biggest stakeholder of the company, with 17 million shares worth $5.75 billion.
Here is what ClearBridge Aggressive Growth Strategy has to say about Snowflake Inc. in its Q2 2022 investor letter:
“Snowflake operates a cloud-based data platform for small and medium-sized businesses and enterprise customers. The company is a key beneficiary of software spending moving to the cloud, as well as the increasing strategic importance of data. With the potential to address the large and growing market for data cloud, a roughly $250 billion plus opportunity by 2026, we see a long runway for growth ahead. Although the company is already profitable, we believe Snowflake still has significant room for free cash flow margin expansion.”
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This article is originally published at Insider Monkey.
