Investors stormed out of former momentum superstars
Medic Computer Systems
on Monday after the companies announced they'd miss earnings estimates for the quarter by wide margins.
Idexx, which makes animal diagnostics equipment, skidded 20, or 63%, to 12, while Medic, a health-care information services provider, plunged 14 7/8, or 53%, to 13 1/8.
The brutal selloff came just weeks after analysts released a flurry of roseate reports about the companies. The dissonance raises troubling questions about the credibility of some research on momentum stocks, which need to show continued improving growth rates to attract investors.
After the release of bad news Monday morning, many analysts scrambled to lower their investment ratings on the stumbling stocks.
Expectations for momentum stocks run very high, and investors demand that the companies beat analysts' high earnings estimates. Missing earnings by even a penny can cost companies millions in market capitalization.
Both companies are heavily owned by institutional investors, who often flee at the first sign of trouble. Prior to the selloff, Idexx was 86% owned by institutions, including pensions, mutual funds and hedge funds, according to
, which tracks equity data. Medic was 88% owned by institutions.
Maine-based Idexx said its first-quarter profits would come in between 2 cents and 5 cents per share, far below the 21-cents per-share consensus estimate on
. Medic, based in North Carolina, said first-quarter results would come in between 14 cents and 18 cents per share, off the 27-cents-per-share estimate.
Analysts were astonished by the fury of the selloff, which claimed similar companies as collateral casualties. "It's like a 2-for-1 stock split," says Randall Huyser, a health-care analyst at
, of Medic's collapse. "We've been neutral. Thank God." Furman Selz has not done any underwriting work for Medic.
The severity of the selloff was reminiscent of last year's slaughter of
, both of which operate in the health-care information services category, as does Medic.
Last October, HCIA fell 46% after it announced it would miss its third-quarter earnings estimate; the announcement prompted a series of downgrades. In August, Medaphis skidded 60% on a similar scenario. Neither company has recovered to pre-bad-news levels.
On Monday, HCIA slipped 4 to 24, Medaphis dipped 3/8 to 10 9/16 and
HBO & Co.
, another health-care information services provider, dropped 2 7/8 to 54 1/2 amid sector concerns.
Analysts, however, say Medic is different. Unlike HCIA and Medaphis, which concentrate on narrow segments of the market, Medic provides broader services to physicians and group practices.
"This is the first stumble the company has had in about four years," says George Shipp, an analyst at
Scott & Stringfellow
in Virginia. Shipp used the massacre as an opportunity to raise his rating on Medic to buy from hold. Scott & Stringfellow has not done any investment banking work for Medic.
Stephen Lieber, the portfolio manager of
who owns both stocks in his fund, said that the blowup caught him by surprise and that he was waiting to discuss further plans with his analysts. "Management said it was a blip, and we have to go by that for now," says Lieber.
funds also got caught in the carnage.
has 1.1% of its total net assets in Medic and
has 1.62% in Idexx, according to a fund spokeswoman.
Some of the other funds that have recently owned shares of the two companies will be familiar to anyone who has followed the wave of momentum shakeouts:
held positions in Medic as of September and Idexx as of December, according to CDA/Spectrum.
owned 13.6% of Medic, with shares held in
OTC Emerging Growth
as of Dec. 31, a Putnam spokesman says. The management firm also owned 11% of Idexx in New Opportunity, OTC, Vista and
as of Jan. 30, the spokesman says.
owned a chunk of both stocks as of December, according to CDA/Spectrum;
American Century: Twentieth Century
owned 642,000 shares of Medic in
and 653,000 shares of Idexx in
as of Oct. 31, according to a company spokesman.
Idexx declined to comment on the company's wild ride. Medic didn't return phone calls.
By Andrew Morse and Avi Stieglitz