The U.S. stocks officially entered a bear market recently. The S&P 500 has declined more than 25% since the beginning of the year, while the Nasdaq has slumped 29% over this period. Michael Burry, Jeremy Grantham, and other renowned investors predict stubborn inflation, a painful recession, and further fall in stocks and other assets. The Federal Reserve yesterday hiked its benchmark interest rates by 0.75 percentage points, the highest increase since 1994, to tame the surging inflation, which increased by 8.6% in May.
Due to the recent macroeconomic shocks, some struggling companies have issued profit warnings for their upcoming quarters. Due to their poor fundamentals, these companies are expected to remain under significant pressure in the upcoming months.
Charles River Laboratories International, Inc. (CRL), Credit Suisse Group AG (CS), and The Scotts Miracle-Gro Company (SMG) are three such hard-hit stocks that have recently guided weak profits for their upcoming quarters. So, shares of these companies are best avoided now.
Charles River Laboratories International, Inc. (CRL)
Headquartered in Wilmington, Massachusetts, CRL is a non-clinical contract research organization that provides drug discovery, non-clinical development, and safety testing services internationally. It has three operational segments: Research Models and Services (RMS), Discovery and Safety Assessment (DSA), and Manufacturing Solutions (Manufacturing).
CRL’s shares declined after the company issued a profit warning for the second quarter. The company expects its EPS to rise in the low to mid-single digits from its year-ago value and down from the previous guidance of mid-to-high single-digit growth. It expects revenue to grow in the high single digits, less than the prior guidance for low-to-double digit growth.
During the three months ending March 26, 2022, net cash provided by operating activities declined 39.7% from its prior-year period to $102.63 million. Its net cash provided by financing activities stood at a negative $13.28 million, compared to $194.72 million in the previous period.
Analysts expect CRL's EPS to decline 70.9% and remain negative in the third quarter ending September 2022. The company's shares have plunged 60.1% year-to-date and 68% over the past six months.
CRL's POWR Ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Within the D-rated Medical - Diagnostics/Research industry, it is ranked #22 of 53 stocks. To see additional POWR Ratings for Value, Sentiment, Growth, Quality, Stability, and Momentum for CRL, click here.
Credit Suisse Group AG (CS)
Headquartered in Zurich, Switzerland, CS offers various financial services in Switzerland, Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company renders wealth management solutions, including investment advice and discretionary asset management services; risk management solutions, such as managed investment products; and wealth planning, succession planning, and trust services.
CS updated that it is likely to post a loss for the second quarter as the war in Ukraine and monetary policy tightening have impacted its investment bank. It stated that while trading revenues benefited from the increase in volatility, the impact of these conditions, along with "continued low levels of capital markets issuance" and widening credit spreads, "depressed the investment bank's financial performance" in April and May.
For the first quarter of fiscal 2022, CS’ net revenues decreased 42% year-over-year to CHF 4.41 billion ($4.42 billion). Its total operating expenses grew 26% from its year-ago value to CHF 4.95 billion ($4.96 billion), while its net loss increased 8.3% from its prior-year quarter to CHF 273.00 billion ($273.31 billion). The company’s loss per share came in at CHF 0.10.
The consensus EPS estimate of $0.60 represents a year-over-year decline of 13.3% for fiscal 2023. The revenue estimate of $4.72 billion represents a decline of 16.2% in the second quarter ending June 2022. The stock has declined 45.6% over the past year and 44.3% over the past nine months.
CS' weak fundamentals are reflected in its POWR Ratings. The stock also has a D grade for Sentiment. In the B-rated Foreign Banks industry, it is ranked #46 of 95 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the CS rating for Momentum, Value, Growth, Quality, and Stability here.
The Scotts Miracle-Gro Company (SMG)
Headquartered in Marysville, Ohio, SMG is involved in manufacturing, marketing, and selling products for lawn, garden care, and indoor and hydroponic gardening in the United States and internationally. The company has three operational segments: U.S. Consumer; Hawthorne; and Other.
SMG’s shares plummeted after the company said it now expects 2022 adjusted earnings of $4.50 a share to $5 a share, below the consensus estimate of $6.95. U.S. consumer sales are expected to decline by 4% to 6%. Also, its Hawthorne cannabis products unit is now expected to see a sales decline of 40% to 45% for the year ended September 30.
For the second quarter ending April 2, 2022, SMG’s net sales decreased 8% year-over-year to $1.68 billion. Its income from operations declined 9% from its year-ago value to $387.90 million, while its net income fell 10.9% from its prior-year quarter to $276.50 million. The company’s EPS plunged 9% year-over-year to $4.94.
Analysts expect SMG's revenue to decline 20.8% year-over-year to $1.27 billion for the third quarter ending June 2022. The consensus EPS estimate of $1.91 represents a year-over-year decline of 51.9% for the third quarter ending June 2022. The company's shares have plunged 55.9% over the past year and 47% year-to-date.
SMG's poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. It has an F grade for Sentiment and a D for Growth and Stability.
SMG is ranked #55 out of 63 stocks in the C-rated Home Improvement & Goods industry. Click here to see the additional POWR Ratings for SMG (Quality, Value, and Momentum).
CRL shares were trading at $205.11 per share on Thursday afternoon, down $7.78 (-3.65%). Year-to-date, CRL has declined -45.56%, versus a -22.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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