Disappointing Earnings Results Have Sent These Stocks Lower Today

U.S. stocks are struggling to hold on to gains this morning, as investors dwell on the latest economic data and a weak rally in the energy markets. Third quarter data points to an annualized GDP growth of 2%, above analysts’ estimates of 1.9%, while WTI has stabilized around the $36 level. In this article, however, we will discuss four stocks that are being driven by the latest round of earnings reports. Let’s see how ConAgra Foods Inc (NYSE:CAG), Steelcase Inc. (NYSE:SCS), Express Scripts Holding Company (NASDAQ:ESRX) and Paychex, Inc. (NASDAQ:PAYX) have fared in the most recent quarter.

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 38 month period beginning from September 2012 (read the details here).

We’ll start with ConAgra Foods Inc (NYSE:CAG), a packaged food company, known for its Chef Boyardee pasta and Orville Redenbacher’s popcorn. The company’s second fiscal quarter results came in mixed compared to the Wall Street expectations, posting revenues of $3.09 billion and diluted earnings of $0.71 per share when adjusted for restructuring and non-recurring costs. Analysts, on the other hand, were looking for a profit of $0.59 per share on $3.39 billion in revenues.

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Although one might expect the stock to plunge as a result, it wasn’t the case for ConAgra. Shares opened slightly higher today and managed to stay in the green during the first hour of trading. The company issued a statement to inform investors that the sale of its private-label unit to TreeHouse Foods Inc. (NYSE:THS) is set to be completed in the beginning of 2016, while the spin-off of Lamb Weston is expected to close next autumn. The management of ConAgra has faced pressure from activist investor JANA Partners to divest some of its assets in order to focus on reviving its household brands. During the third quarter, Barry Rosenstein increased JANA’s holding of the stock by 165% to 30.5 million shares valued at $1.24 billion.

Slowing business in Europe, Middle East and Africa regions have had a major negative impact on Steelcase Inc. (NYSE:SCS)‘s third quarter results, as both revenues and earnings have missed analysts’ expectations. The furniture company posted revenues of $787.6 million, down by 1.5% year over year, and earnings of $0.30 per share, missing the consensus of $813 million in revenues and a profit of $0.33 per share.

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The company has seen a solid revenue growth in recent quarters, but the slow revamp of its European operations has offset the progress in North America and other regions. Steelcase Inc. (NYSE:SCS)’s management has also announced its expectations for the current quarter, projecting revenues of $720 million to $745 million, while earnings are expected to range between $0.20 and $0.24 per share. Chuck Royce holds the largest investment in the company among the fund managers we follow, with Royce & Associates having reported in its latest 13F filing ownership of 1.82 million shares worth north of $33.5 million.

Express Scripts Holding Company (NASDAQ:ESRX), the largest pharmacy-benefit manager in the Unite States, has issued full-year guidance for 2016 that surpasses analysts expectations, sending the shares higher in pre-market trading. The company said it expects full-year earnings to range between $6.08 and $6.28 per share, while analysts polled by Thomson Reuters were projecting a profit of $6.04 per share. Express Scripts has also reiterated its 2015 earnings growth forecast of 13%-14%. Although shares opened higher this morning, the quickly turned south and the stock is currently down by roughly 1%.

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Express Scripts Holding Company (NASDAQ:ESRX) lost some of its appeal during the third quarter, as the number of hedge funds invested in the stock dropped to 58 at the end of September from 62 a quarter earlier. Bob Peck and Andy Raab are betting big on this stock, having pledged nearly 10% of their funds to this investment. Their fund, FPR Partners, reported a position that amassed 4.87 million shares worth $394 million as of the end of the quarter.

In its latest quarterly report, Paychex, Inc. (NASDAQ:PAYX) provided investors with mixed results, having missed revenue expectations and beaten earnings estimates. Fiscal second quarter profit stands at $189.2 million or $0.52 per share, while analysts were looking for $0.51 per share. Revenues came in at $722.4 million, below expectations of $724.1 million. So far this year, the stock is up by more than 12%, although today, during the first hour of trading, it dipped into the red.

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Paychex, Inc. (NASDAQ:PAYX) is another stock hedge funds were shying away from during the quarter, as the number of long positions held by top funds decreased by nine to 22. Robert Joseph Caruso tripled his investment in the company, taking it to 4.98 million shares valued at $237 million, according to Select Equity Group’s latest 13F filing.

Correction: An earlier version of this article presented the incorrect adjusted EPS figure for ConAgra and stated that ConAgra plans to sell Lamb Weston.

Disclosure: none.