Why Valeant Pharmaceuticals, Avis Budget Group, and ArcelorMittal Slumped Today
Tuesday's news centered on the presidential election, and despite uncertainty about both the result and the aftermath in the days to come, the stock market nevertheless gained ground. The Dow was up 73 points and other major market benchmarks were up roughly 0.5%, but not all stocks participated in the rally. In particular, Valeant Pharmaceuticals (NYSE: VRX), Avis Budget Group (NASDAQ: CAR), and ArcelorMittal (NYSE: MT) were among the weakest performers on Tuesday. Below, we'll look more closely at these stocks to tell you why they didn't fare well.
Image source: Getty Images.
Valeant expects even tougher times ahead
Valeant International plunged 22% after issuing its third-quarter financial report and dealing with the fallout, which included a credit-rating downgrade from a key ratings agency. Valeant's earnings for the quarter fell short of investor expectations by more than 10%, but even more importantly, the company cut its guidance for the full 2016 year by about 20% to between $5.30 and $5.50 per share in adjusted earnings.
Valeant recognized more than $1 billion in goodwill impairment charges, most of which were due to its Salix Pharmaceutical unit. As if that weren't bad enough, Valeant CFO Paul Herendeen signaled that 2017 might not be any better. With a credit downgrade from Moody's to B3, Valeant is seeing increased risk that it might not be able to avoid an adverse credit event that would bode particularly badly for shareholders.
Avis Budget falls in sympathy
Avis Budget Group dropped 8% in response to a poor financial report from its primary competitor. Rival Hertz Global Holdings reported poor performance in its third quarter, including adjusted earnings that were 40% less than investors were expecting to see. In addition, the industry-leading rental-car company gave guidance that suggested an even larger full-year earnings decline.
One concern in the industry is that companies like Avis have to price rental cars at a level at which they can offset the depreciation in their value before the rental car company sells the vehicle through direct sales or used-car auctions. Avis Budget's earnings didn't include major concerns, but investors nevertheless remained unconvinced that it would be immune from the phenomenon going forward.
ArcelorMittal drops despite profitable quarter
Finally, ArcelorMittal dropped 6%. The steel producer said that it managed to earn a profit in its third-quarter financial report, pointing to stronger performance in the steel market. However, the company also said that rising prices for metallurgical coal hit its profit-margin figures, and as a result, ArcelorMittal's profit wasn't as large as most investors were expecting to see.
The steel maker intends to expand its global portfolio of products for the automotive industry as part of its five-year Action 2020 strategic plan, but overcapacity in steel production will remain problematic, at least for the near future. Long-term investors hope that Action 2020 will pay off eventually, but for now, traders aren't so certain about ArcelorMittal's prospects.
10 stocks we like better than ArcelorMittal When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and ArcelorMittal wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of November 7, 2016
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Valeant Pharmaceuticals. The Motley Fool owns shares of Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.