Avoid These 2 Stocks That Recently Cut Their Full-Year Guidance

The broader equity markets, while trading near record highs, continue to remain volatile in the near term. Investors are worried about the spread of the highly infectious delta variant strain that might compel governments to reimpose restrictions, thereby delaying the post-pandemic macro recovery.

It also suggests that companies reporting their results for the June quarter might provide tepid guidance given the uncertainties surrounding the global markets.

Here, we take a look at two such stocks in Clorox (CLX) and TPI Composites (TPIC) that have recently cut their full-year estimates and are trading at a lower valuation.

Clorox 

Clorox’s sales were down 9% year over year in the fiscal fourth quarter of 2021 that ended in June. The company’s management attributed the decline to a fall in its health and wellness business that fell 17% year over year, as well as lower shipments.

The health and wellness segment is the company’s largest business that sells home products. Clorox in fact experienced massive demand for its products such as bleach and disinfectants amid the COVID-19 pandemic and the ongoing deceleration in top-line have resulted in a pullback.

In fact, three of the four businesses experienced a drop in sales in Q4. Clorox also reported a net loss of $10 million in the quarter, compared to a net income of $252 million in the prior-year period. In fiscal 2022, Clorox expects sales to fall between 2% and 6% while gross margins might decrease between 300 and 400 basis points.

Comparatively, Wall Street had forecast Clorox sales to drop by 1.1% year over year to $7.38 billion. Clorox stock rose by 275% in 2020 but is down 18% year to date.

TPI Composites

TPI Composites manufactures and sells composite wind blades and related assembly systems to original equipment manufacturers. The shift towards clean energy solutions has meant the stock gained over 300% between January 2020 and February 2021. The stock is currently trading 45% below its record highs and has fallen 18.5% year to date.

TPI Composites continues to spend heavily on capital expenditure and build capacity as renewables continue to attract investments. In July, the company forecast 2021 sales at $1.8 billion compared to its earlier forecast of $1.85 billion and adjusted EBITDA is forecast between $70 million and $85 million, down from its earlier forecast between $110 million and $135 million.

TPI has expected rising raw material costs as well as logistical issues to lower than expected forecasts. Analysts expect sales to rise by 7.7% to $1.8 billion and earnings might touch $0.67 per share in 2021. The stock is also trading at a discount of 30% to average consensus estimates. In the next five years, Wall Street also forecasts the company to increase its earnings at an annual rate of 50% in the next five years.

CLX shares were unchanged in after-hours trading Monday. Year-to-date, CLX has declined -16.93%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

More...