Thursday's Headlines: Teladoc Shares Drop After Downgrade

Thursday's Headlines: Teladoc Shares Drop After Downgrade

Here were the biggest movers in the MyWallSt shortlist yesterday:

Moving Up ⬆️

BlackLine (BL) +7.6%

Evolent Health (EVH) +4.1%

FactSet (FDS) +1.2%

Apple (AAPL) +0.9%

Constellation Brands (STZ) +0.8%

Moving Down ⬇️

Farfetch (FTCH) -11.6%

Upstart Holdings (UPST) -9.0%

Teladoc (TDOC) -8.9%

2U (TWOU) -8.4%

Roku Inc. (ROKU) -6.8%

Here are the stories that you need to know ahead of market-open today, Thursday the 18th of August.

Teladoc Shares Drop After Downgrade 🩻

Teladoc Health (TDOC) saw its share price drop by almost 9% after being downgraded by Guggenheim partners to a sell rating. This represents the third downgrade by an analyst out of four recommendations this month alone. The analyst claimed Teladoc’s pace of growth should slow due to three possible headwinds.

The first headwind is consumers are forecast to restrict their spending in an inflationary environment. However, consumer spending has been growing, reaching an all-time high in the second quarter of this year. While this is not guaranteed to continue, it does show market abnormalities. Teladoc’s revenue will be directly impacted by lower spending, especially as consumers switch to cheaper alternatives and cut costs.

Another headwind identified was a delay in enterprises deciding to sign up for its products due to a weakening macroeconomic environment. As access to capital drops and sales weaken, companies look for ways to cut costs, which may mean cutting some employee benefits or delaying plans to implement them.

Finally, the third headwind facing Teladoc was the impact of a strong dollar. The U.S. dollar index has increased by over 11% this year, lowering the dollar-denominated sales of companies engaged in foreign markets. Teladoc’s international sales accounted for 12.5% of total revenue this year, limiting the impact of a stronger dollar.

The company’s share price is currently down by over 62% this year, significantly higher than its benchmark index. This is due to investors abandoning unprofitable and expensive tech stocks in favor of safer assets.

Target Profits Sink on Discounting 🛍

Target saw profits drop by 90% in their latest earnings report after steep discounts. The retailer missed Wall Street estimates by a wide margin, bringing in just 39 cents per share versus the 72 cents expected. The company had previously reduced guidance for the quarter twice.

However, management defended their aggressive discounting and said they were now set up for a rebound in the holiday season.

“If we hadn’t dealt with our excess inventory head on, we could have avoided some short-term pain on the profit line, but that would have hampered our longer-term potential,” Target’s CFO Michael Fiddelke said.

The company has had a sharp turn in fortunes as consumers pull back on discretionary spending. Items like clothing and home furnishings have had to be heavily discounted over the last three months as inflationary pressures hit households. Earlier this month, Walmart warned investors that it was seeing a seismic shift in consumer spending.

Comparable sales were up for the quarter — growing 2.6%. That was slightly lower than analysts expected. However, management was upbeat about the coming quarters, maintaining guidance for the year. CEO Brian Cornell said the company was taking a cautious approach.

Shares of Target are down 22% this year.

Bed Bath & Beyond Sinks…Again 💸

Founding member of the infamous meme stock fraternity, Bed Bath & Beyond, has once again seen its stock begin to plummet pre-market today. Shares in the domestic merchandise retail store are down 14% so far today on the back of the news that activist Ryan Cohen is reportedly selling his entire stake in the company.

Cohen announced a 9.8% ownership in the then beleaguered company in early March, sending Bed Bath & Beyond’s stock soaring by 34% in a single day after an initial 85% spike. The chairman of fellow meme stock Gamestop’s board shared recommendations on how the company should improve, while also expressing doubts about the firm’s ability to create true shareholder value.

A Form 144 — an official notice of a proposed securities sale — filed with the Securities and Exchange Commission shows that Cohen’s RC Ventures firm intends to sell 9.45 million shares of BBB — its entire stake.

While this has sent Bed Bath & Beyond's stock plummeting, it must be noted that the firm has once again been at the forefront of another short squeeze. It’s up over 365% in the past month alone as Reddit’s infamous Wall Street Bets forum has once again incited another round of meme stock mania.

Meme stocks are inherently risky propositions, as their stock can rise and fall with little regard for the actual internal dealings of the company. With no way to accurately gauge how the company’s stock will actually move based on performance, any investment in such a business is effectively a speculative gamble. Bed Bath & Beyond has recently been facing liquidity issues as its losses continue to widen year-over-year. Despite now outpacing the wider market by a significant margin as a result of its latest short squeeze, there’s simply no way to know what’s next for this enigmatic firm.

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