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Stocks Sinking On Earnings Reports: Ingersoll-Rand PLC (IR), CommVault Systems, Inc. (CVLT)

CommVault Systems, Inc. (NASDAQ:CVLTreported its fiscal 2016 first quarter results today, while Ingersoll-Rand PLC (NYSE:IR) reported its second quarter financial results, both before trading began today. Both companies reported an earnings miss for the quarter, resulting in CommVault Systems, Inc. (NASDAQ:CVLT)  dropping more than 12% of its value, while Ingersoll-Rand PLC (NYSE:IR) has dipped by more than 6% in trading today. Hedge funds were split on the two companies heading into the second quarter, with one of the results appearing to catch them off guard.


Before going on to analyze the hedge fund activity in these stocks, why do we at Insider Monkey emphasize the importance of hedge fund activity? We pay attention to hedge funds’ moves because our research has shown that hedge funds are extremely talented at picking stocks on the long side of their portfolios. It is true that hedge fund investors have been underperforming the market in recent years. However, this was mainly because hedge funds’ short stock picks lost a ton of money during the bull market that started in March 2009. Hedge fund investors also paid an arm and a leg for the services that they received. We have been tracking the performance of hedge funds’ 15 most popular stock picks in real time since the end of August 2012. These stocks have returned 123.1% since then and outperformed the S&P 500 Index by around 66.5 percentage points (see the details here). That’s why we believe it is important to pay attention to hedge fund sentiment; we also don’t like paying huge fees.

The Tinton Falls-based CommVault reported adjusted earnings of $0.12 per share on total revenue of $139.1 million for its fiscal first quarter of 2016. The Zacks consensus estimate stood at $0.24 in EPS on revenue of $147.6 million. CommVault missed the Street’s expectations on both fronts. Year-to-date, the stock has dropped more than 33% of its value, including the huge drop today.

At the end of the first quarter, 21 hedge funds had long positions in CommVault Systems, Inc. (NASDAQ:CVLT) with a total investment of $441.9 million, 2.5% lower than the total investment held by 19 hedge funds at the end of 2014. Considering the fact that the stock dropped more than 15% of its value during the first three months, we can say that the hedge funds opted to pour more money into the stock during the first quarter. But the stock performance so far this year has not reflected the smart money’s sentiment.

Most notably, Ken Griffin of Citadel Investment Group had almost doubled his holding in the stock during the January – March period, as he held around 3.5 million shares valued at $153.1 million by the end of March. Among the hedge funds which opened fresh positions in the stock, John Brennan‘s Sirios Capital Management leads the way, as it purchased around 763,000 shares during the first trimester. Anand Parekh’s Alyeska Investment Group and Dmitry Balyasny’s Balyasny Asset Management also opened fresh positions in the stock during this period. Hedge fund activity on the stock during the second quarter might reveal a little bit more insight into whether hedge funds still believe in the stock at even lower levels, or whether they have moved out of it.

Considering the stock’s poor performance so far this year, we can say that hedge funds got it wrong during the first quarter by opting to invest more in it and don’t recommend investors do so now.

On the other hand Ingersoll-Rand PLC (NYSE:IR) reported total adjusted profit of $1.20 per share for the second quarter compared to the Zacks consensus estimate of $1.23 in EPS. The Dublin-based company reported net revenue of $3.6 billion, again marginally missing the Zacks consensus estimate of $3.68 billion. Ingersoll-Rand also provided EPS and revenue guidance for the current quarter, ending September 30 of $1.15 – $1.19 and $3.66 billion – $3.81 billion respectively. The stock had gained around 7.5% during the first quarter, before losing most of the gains today.

There were 41 hedge funds with a total investment of $1.98 billion in Ingersoll-Rand PLC (NYSE:IR) at the end of March. When compared to a $2.42 billion investment by 43 hedge funds at the end of 2014 and taking into account the stock’s jump by 7.4% during the first three months, we can say that hedge funds were somewhat bearish on the stock, as they pulled money out of it. Shares are now down by over 10% since the end of the first quarter, so we can see that in this case, hedge funds got it right.

Nelson Pletz‘s Trian Partners continued to hold the largest position in the stock during the first quarter, but even it sold around 34% of its holding during the first three months, leaving it with around 8.5 million shares valued at $583.4 million, comprising 6.81% of its total 13F portfolio at the end of March. Among the hedge funds who opted to say goodbye to this stock, leading the way was Andreas Halvorsen‘s Viking Global, as it offloaded all its 1.96 million shares of the company during the first trimester.

Considering the bearish hedge fund sentiment, coupled with its weak second quarter earnings, we don’t recommend buying the stock of Ingersoll-Rand at this time either.

Disclosure: None

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