What Do A Stock Analyst, Weatherperson and Economist Have In Common?
Death, taxes and Wall Street analysts initiating positive coverage on recent IPOs. Following an IPO, Wall Street sell-side analysts enter a "quiet period" where they won't issue ratings on the company. Once the quiet period ends, a flood of positive coverage typically ensues.
While this is not a new phenomenon, the consistency of analyst's ratings for this year's less-than-stellar high-profile IPOs is worth writing about.
The first notable example is Uber, when analysts at 25 different Wall Street firms initiated coverage on June 4, with none of them rating the stock as a "sell." Twenty analysts rated the stock a "buy," with the remaining five rating it a "hold." Since the analyst initiations, shares of Uber have declined by 26%.
The second notable example is SmileDirectClub, when analysts at eight different Wall Street firms initiated coverage on October 7, with none of them rating the stock as a "sell." Shares had already fallen by 29% from the IPO opening price, but analysts were still unanimously bullish. Since the analyst initiations, shares of SmileDirectClub have declined by 32%.
Lyft was an outlier, receiving one rare "sell" rating when analysts initiated coverage on April 23. With shares already down 30% from the IPO opening price, 14 of 22 analysts initiated the stock with a "buy" rating, while seven gave it a "neutral" rating. Since the analyst initiations, shares of Lyft have declined 32%.
Yesterday, it was time for analysts to finally weigh in on Peloton. If you were thinking analysts may have learned a lesson from the examples above, you're mistaken. With shares down 13% from the IPO opening price, 17 brokerage firms initiated coverage on the company, with 16 of them giving the stock a "buy" rating and one analyst giving it a "neutral" rating. Investors didn't seem to care though, sending shares down another 5% yesterday.
While all of these analysts could end up being correct in the long run, their initial recommendations have thus far proven to be unanimously incorrect. However, they will still collect their paychecks and do the same thing when the next hot IPO quiet period ends. If you want a career where you can be consistently wrong and continue to get paid well, sell-side analyst could be right up there with weatherperson and economist.
No worries, taxpayers will bail them out. According to a report from consultant McKinsey & Co., more than half of the world’s banks are too weak to survive a downturn. Pointing out that their returns on equity are not high enough, McKinsey suggests solutions such as developing technology, outsourcing operations and growing through M&A in anticipation of the next economic downturn. Kausik Rajgopal, a senior partner at McKinsey, said "We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape."
Pay some money; no one will go to jail. Four drug companies, Teva, AmerisourceBergen, Cardinal Health and McKesson, reached a settlement yesterday just hours before the first federal trial for the opioid crisis was set to begin. The settlement only covers two Ohio counties that were acting as plaintiffs in what was seen as a test case for additional lawsuits. The two counties will receive $235 million as well as $25 million worth of Suboxone, an opioid addiction treatment as part of the settlement. The judge said Walgreens, which is the only remaining defendant in the lawsuit, will be given a new trial date.
That sounds like a pretty serious allegation. Shares of Infosys, India's second-largest IT services company, fell 12% following a whistleblower complaint revealing the company was taking "unethical" steps to boost profits and revenue. A group calling themselves "Ethical Employees" filed a whistleblower statement with the company’s board and the U.S. Securities and Exchange Commission. The group said they have emails and voice recordings to substantiate their claims. Infosys replied "The whistleblower complaint has been placed before the audit committee as per the company's practice and will be dealt with in accordance with the company's whistleblowers policy."
Add another one to the list. Fidelity is the latest company to decide they don't want anything to do with Ken Fisher's investment company following his remarks at an investors conference a couple weeks ago. Fidelity, one of the largest asset managers in the world, terminated its $500 million relationship with Fisher Investments yesterday. Fisher managed $500 million of the $8 billion Fidelity Strategic Advisers Small-Mid Cap Fund. Fisher's comments have now cost his company about $1.8 billion in funds so far.
It will probably still take an hour to find something decent to watch. Netflix will issue $2 billion in debt "for general corporate purposes, which may include content acquisitions, production and development." Given the increasing cost of acquiring content, $2 billion may be better spent on creating original content or share buybacks. This is the second $2 billion offering for the company so far this year. Shares of Netflix are now down 10% from their post-earnings high last Thursday.