With the oil strike in Kuwait entering its third day, crude oil futures are near monthly highs and not surprisingly the S&P 500 future is also within striking distance of its all-time high. Among the stocks making moves in this optimistic market are Panera Bread Co (NASDAQ:PNRA), eBay Inc (NASDAQ:EBAY), Netflix, Inc. (NASDAQ:NFLX), Target Corporation (NYSE:TGT), and Illumina, Inc. (NASDAQ:ILMN), though not all of them are moving in the right direction. Let’s examine why each stock is making noise this morning and see what the world’s greatest investors think of each stock.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage point above the market (see the details here).
Analysts Give Thumbs Up to Panera
Panera Bread Co (NASDAQ:PNRA) is 2.23% higher this morning after analysts at Jefferies upgraded the stock to ‘Buy’ from ‘Hold’, citing increasing comparable sales growth. Analysts at KeyBanc also bumped up their rating on the restaurant chain to ‘Overweight’ from ‘Sector Weight’. Investors are hoping that the analysts are right when the company reports its earnings on the 26th of this month. The smart money isn’t as enthusiastic about the chain. 18 funds in our system owned $578.9 million worth of Panera Bread Co (NASDAQ:PNRA)’s shares on December 31, down from 23 funds with $689.41 million in Panera holdings on September 30. Christian Leone‘s Luxor Capital Group held 838,249 Panera shares at the end of 2015.
Analyst Downgrade Sends eBay Lower
On the other hand, eBay Inc (NASDAQ:EBAY) shares are 2.71% in the red today after analysts at Morgan Stanley lowered their rating on the e-commerce website to ‘Underweight’ from ‘Equal-weight’. The analysts lowered their rating because they don’t think eBay has as much growth as bulls of company do. The Morgan Stanley analysts also worry about Amazon.com, Inc. (NASDAQ:AMZN)‘s presence, which is growing larger every day. Our data shows that many smart money investors still like eBay Inc (NASDAQ:EBAY). 72 funds that we track owned shares of the company at the end of December, with the funds owning 8.5% of the float. Cliff Asness’ AQR Capital Management owned more than 6.7 million eBay shares at the end of 2015.
On the next page we examine why Netflix Inc is collapsing, as well as check in on Target Corporation and Illumina Inc.
Netflix’s First Quarter Falls Short of Growth Expectations
Netflix, Inc. (NASDAQ:NFLX) shares have retreated by over 10% in morning trading after the video streaming provider reported a lackluster first quarter. Although the company beat earnings estimates by $0.03 per share with EPS of $0.06, its total subscriber growth fell short of the consensus, adding just 2.23 million net subscribers for the quarter. Projected subscriber growth was also on the weak side, with the company guiding for 500,000 subscriber adds in the U.S and 2.00 million internationally for the second quarter, while some estimates expected as much as 4.00 million adds for the period. The slowing subscriber growth has prompted some investors to wonder what Netflix’s penetration limit is for the U.S. Although Netflix thinks its upper limit is 90 million homes, other analysts think it could be just two-thirds of that. The plot thickened further yesterday when Amazon revealed that its Prime Video service was now available to the masses, and Netflix also faces strong streaming competition from the likes of HBO. 64 funds in our database owned Netflix, Inc. (NASDAQ:NFLX) at the end of December.
Target Commits to Living Wage
Target Corporation (NYSE:TGT) is trending today after Reuters published a report stating that the discount retailer ‘has started raising employee wages to a minimum of $10 an hour’. $10 per hour would be a $1-per-hour raise for many Target employees and is $2.75 better than the Federal minimum wage of $7.25 per hour. Target could be raising its wages because of the hot jobs market in the U.S, which has pushed the unemployment rate down to around 5%. The move follows a similar move made by rival Wal-Mart Stores, Inc. (NYSE:WMT) earlier this year. 38 funds in our system owned shares of Target Corporation (NYSE:TGT) at the end of the fourth quarter, down from 44 at the end of the third quarter.
Illumina Shares Crushed On Revenue Warning
Illumina, Inc. (NASDAQ:ILMN) shares have fallen by over 25% this morning after the company warned that its first quarter top-line results will miss expectations. The company issued preliminary estimates of first quarter revenue of just $572 million, versus estimates of $596 million. Chairman and CEO Jay Flatley explained some of the challenges that impacted the results in a press release:
“Our first quarter results fell short of expectations largely due to lower than expected sales of HiSeq 2500, 3000 and 4000 instruments. Despite this slow start in Q1, we anticipate that our Americas and Asia Pacific regions will meet our expectations for the full year, but that Europe will underperform. As a result, we now project approximately 12% revenue growth for fiscal 2016. Given the disappointing outlook in Europe, we have made management changes in the region and plan to implement a program of actions to achieve our goal of delivering the robust growth we believe the market can support.”
The number of funds that we track with holdings in Illumina, Inc. (NASDAQ:ILMN) fell heavily during the fourth quarter, by 22, ending December at 40.