Tokos Shares Dive 34% on Bleak Profit Report : Stock: Health care company says third-quarter earnings will probably sink below analysts’ estimates, prompting heavy trading.
Tokos Medical Corp. shares plummeted 34% Tuesday after company officials said fourth-quarter profits would probably fall below analysts’ estimates.
The stock’s fall--down $8.50 to close at $16.12 in heavy over-the-counter trading--was another reminder from Wall Street of the volatility of health care issues.
“It kind of goes with the territory, I guess,” said Craig T. Davenport, president of Tokos, the nation’s leading manufacturer and provider of in-home pregnancy monitors and services. The company’s machines detect the onset of premature labor in pregnant women.
About 4.3 million shares--more than 20 times normal daily volume--were traded after the company said its fourth-quarter profit would likely fall below analysts’ estimates of $4.4 million to $5.2 million. Tokos was the largest percentage loser on the NASDAQ exhange.
Tokos officials also announced that its revenue for the quarter ending Dec. 31 would not likely meet analysts’ estimates of between $47 million to $50 million.
Based on October’s sales performance, Davenport said that he expects the company to be “either flat or slightly up from the third quarter.” Third-quarter earnings were $2.5 million on revenue of $44.4 million.
“We felt we have a responsibility to our shareholders to say that we don’t feel it is realistic” to achieve analysts’ predictions, Davenport said.
Tuesday’s announcement sparked at least one brokerage to lower its recommendation of Tokos stock from a ‘buy’ to a ‘hold.’
“We have lowered it because of all the uncertainty,” said Craig Dickson, an analyst for Interstate/Johnson Lane Corp. in Charlotte, N.C.
But the announcement, coming more than a month before the end of the quarter, rattled investors.
Company officials and analysts, scrambling to assess the short-term impact of the hefty sell-off, said that longstanding controversies surrounding devices and drugs that detect and stop premature labor have made the company particularly susceptible to wide swings in its stock price.
The most recent problems followed an August report from a committee of the American College of Obstetricians and Gynecologists that questioned the effectiveness of prenatal monitoring devices. A Canadian team of doctors had warned in July that a popular labor-stopping drug was largely ineffective.
Tokos challenged that study and in October the Food and Drug Administration ruled that the drug, called ritadrine, is useful and safe, despite findings in the Canadian report, which was published in the New England Journal of Medicine.
Tuesday’s earnings announcement apparently prompted already jittery investors to sell Tokos stock at near-record levels.
“What transpired here is a reflection of (that) history,” said analyst Howard Rosencrans of HD Brous & Co., a brokerage based in Long Neck, N.Y. “It becomes a self-fulfilling prophecy.” HD Brous is maintaining a ‘buy’ recommendation for Tokos stock.
In a prepared statement, Tokos Chairman Robert F. Byrnes said reduced patient referrals and a growing number of patients needing less extensive care have hurt anticipated revenue. Byrnes also cited lower revenue from CareLink, a recently acquired competitor in Irvine.
The volatility of Tokos stock has recently worked in the company’s favor.
After last month’s FDA ruling and a third-quarter report that showed profit up 36%, Tokos’ stock climbed from $18 on Oct. 28 to its Monday close of $24.62.
