Markets

Dow 30 Stock Roundup: NIKE Beats Estimates, Pfizer Ups 2015 Outlook, Microsoft Changes Reporting Structure

The Dow experienced a mixed week as gains were again limited by concerns from China and a slump in biotech stocks. The blue-chip index declined on Monday following a continuing slump in biotech stocks and weak data coming out of China. The Dow gained on Tuesday following a recovery in healthcare stocks and encouraging economic data on the domestic front.

The blue-chip index jumped on Wednesday following an encouraging jobs report. The Dow experienced losses on Thursday on concerns about a weak Chinese economy and dismal domestic manufacturing data. The Dow has lost 0.3% during the first four trading days.

LastWeek's Performance

Stocks finished mixed on Friday despite a triple-digit gain in the Dow as another slump in biotech shares offset NIKE, Inc.'s NKE robust earnings results and the Fed Chairwoman Janet Yellen's encouraging speech. The Dow gained 0.7%, or 113.35 points, powered by Nike's promising earnings.

However, a decline in biotech stocks erased some of the day's earlier gains. U.S. Democratic presidential candidate Hillary Clinton's comment to prevent "price gouging" for specialty drugs last Monday continued to weigh on biotech and healthcare stocks.

Meanwhile, Janet Yellen's encouraging comments on Thursday regarding a rate hike this year had led to initial gains. Late Thursday, Yellen indicated that the lift-off option is very much on the table later this year. She was also optimistic about the US economy.

Strong second quarter GDP data failed to boost benchmarks. According to "third estimate" released by the U.S. Department of Commerce reported on Friday, the economy grew at a pace of 3.9%, higher than the consensus estimate and previously projected growth of 3.7%.

For the week, the Dow declined 0.4%. Slump in biotech and health care stocks was a major drag on markets. A 9.6% weekly decline in Caterpillar Inc.'s CAT shares dragged down the Dow in negative territory for the week. The company announced a restructuring program on Thursday, which includes trimming 10,000 jobs by the end of 2018.

Meanwhile, disappointing Chinese economic data including plunge in manufacturing activity and Asian Development Bank's (ADB) weak economic outlook for China dampened investor sentiment. Also, Volkswagen's VLKAY alleged scandal related to vehicle emission tests and weak economic data also weighed on benchmarks.

The DowThisWeek

The blue-chip index declined 1.9% on Monday following weak data coming out of China. Profits in Chinese industrial companies dropped 8.8% from the year-ago level in August. It was also reported that profits declined 1.9% through January to August year on year. Weak Chinese data dragged down oil prices on Monday. Meanwhile, biotech stocks continued to take heavy losses.

Meanwhile, the Pending Home Sales Index declined 1.4% to 109.4 in August, hitting its lowest reading in last five months. Though a year-over-year gain of 0.3% in PCE index - an important indicator of inflation - indicated that the inflation rate is significantly below the Fed's target of 2%, a rise of 0.4% in consumer spending in August signaled toward rising demand.

The Dow gained 0.3% on Tuesday following a recovery in healthcare stocks and encouraging economic data on the domestic front. The Dow finished in the positive territory yesterday, but lost most of the 117 points that it had gained in the initial session.

Consumer Confidence Index rose to 103 in September from August's reading of 101.3, higher than the consensus estimate of 96.1. The index hit the highest level since January. Moreover, the consumer present situation index increased from August's 115.8 to 121.1 in September, witnessing its highest reading since Sep 2007.

Meanwhile, the S&P/Case-Shiller Home Price Index gained 4.7% year on year in July, higher than a gain of 4.5% in June. While the 10-city index increased 4.5% from the year-ago period in July, 20-city index rose 5%. In month-over-month basis, the S&P/Case-Shiller Home Price Index rose 0.7% in July. Both the 10-city index and 20-city index gained 0.6% in July.

The blue-chip index jumped 1.5% on Wednesday boosted by an encouraging jobs report. Better-than-expected jobs data from ADP offset dismal manufacturing data in Chicago. Automatic Data Processing, Inc. ADP reported that privately-owned companies generated 200,000 jobs in September, higher than market expectations of 195,000. This the Chicago PMI's decline from August's reading of 54.4 to 48.7 in September.

Meanwhile, biotech stocks rebounded strongly. Additionally, encouraging consumer sentiment data out of China also boosted investor sentiment. Separately, weak economic data from Japan and Eurozone fueled speculations that they may opt for further stimulus measures.

Over last month, the Dow slumped by 1.5% Weak Chinese economic data including dismal manufacturing data, disappointing trade data, lower-than-expected factory output and decline in industrial output dampened investor sentiment. Meanwhile, the Fed's decision to keep the key rates unchanged during the FOMC meeting this month also weighed on markets. Several domestic economic reports were also discouraging.

For the quarter, the blue-chip index plummeted 7.6%. Markets managed to register gains in July despite weak earnings and international growth concerns. China's equity markets slumped, heightening investor concerns. August was particularly painful for the Dow which experienced its biggest monthly decline in more than five years. Concerns regarding weak Chinese economy, oil price slump and rate hike uncertainty dominated investor sentiment throughout the quarter.

The Dow lost nearly 0.1% on Thursday on concerns about a weak Chinese economy and dismal domestic manufacturing data. Investors also remained cautious ahead of non-farm payroll data, which is scheduled for release today and is anticipated to play an important role in the rate hike decision.

On Thursday, China's official data showed that manufacturing purchasing managers index increased to 49.8 in September from August's reading of 49.7. Moreover, the Caixin China manufacturing PMI declined in September to a six-year low of 47.2 from August's 47.3, also indicating contraction in the sector.

On the domestic front, the ISM Manufacturing Index in the US declined from August's 51.1 to 50.2 in September, hitting its lowest mark in last two years. September's reading also came below the consensus estimate of 50.6. Meanwhile, construction spending in August rose by 0.7%, higher than the consensus estimate of 0.6% rise.

ComponentsMovingthe Index

NIKE 's first-quarter earnings per share of $1.34 surged nearly 23% year over year and surpassed the Zacks Consensus Estimate of $1.19. The bottom-line growth was driven by an impressive top line, gross margin improvement, lower tax rate, reduced share count and selling, general and administrative (SG&A) expenses leverage.

Net sales of this sportswear retailer advanced 5.4% to $8,414 million in the quarter and beat the Zacks Consensus Estimate of $8,215.9 million. On a currency neutral basis, sales rose 14%.

For second-quarter fiscal 2016, the company anticipates revenue to grow in the mid-single-digit range and gross margin to improve 25 bps based on the company's efforts to clear excess inventory in North America and keep the in line channel fresh.

Pfizer Inc. 's PFE shares gained 1.26% on Sep 30 with the company boosting its outlook for 2015. The company, which recently completed its acquisition of Hospira, said that the deal is expected to push up 2015 revenues and earnings by $1.5 billion and 3 cents, respectively. As a result, Pfizer now expects to earn $2.04 - $2.10 per share on revenues of $46.5 billion - $47.5 billion this year.

With the Hospira acquisition, Pfizer has significantly expanded its sterile injectable and biosimilar capabilities. The acquisition has provided Pfizer with Hospira's lucrative biosimilar portfolio of both marketed and pipeline assets.

Microsoft Corp . MSFT announced that it was changing its financial reporting structure. Starting fiscal 2016 (which began Jul 1, 2015), Microsoft will report results under three segments.

Productivity and Business Processes will comprise Office, Office 365 services and related products. Intelligent Cloud will include the entire back-end enterprise software, non-cloud products -Windows Server, and cloud-based services like Azure. More Personal Computing will consist of Windows, Xbox, online services, mobile devices like phones and the Surface tablet.

The company announced that it will restate the fiscal 2014 and 2015 results under the new operating segments. Next month, the company will report fiscal first-quarter 2016 results under the new revenue structure.

Boeing Co.BA has received an order for 22 Apache attack helicopters and 15 CH-47F Chinook multi-mission heavy-lift helicopters for the Indian Air Force ("IAF"). This was the outcome of a deal recently signed between the U.S. government and India.

The contract is worth around $3 billion. The first delivery is expected in Sep 2018 while the complete order should be delivered by Mar 2020. The deal also includes the option for follow-on orders of another 11 Apaches and 7 Chinooks.

In a separate development, Boeing received a contract worth nearly $127.1 million for B-1 integrated battle station for the B-1 weapon system from the U.S. Department of Defense.

Additionally, United Launch Alliance ("ULA"), a joint venture of Lockheed Martin Corp LMT and Boeing has won a modification contract worth $882.1 million from the U.S. Air Force for Evolved Expendable Launch Vehicle (EELV) capability for the Delta IV and Atlas V family of launch vehicles.

The Coca-Cola CompanyKO announced its plans to divest nine production plants to three of its independent bottlers in order to lower costs, streamline production system and generate higher returns on investments.

Coca-Cola signed letters of intent with three independent bottlers - Coca-Cola Bottling Co. Consolidated (Consolidated), Coca-Cola Bottling Company United (United) and Swire Coca-Cola USA (Swire) to form a nationwide supply group, National Product Supply System (NPSS) along with its owned bottler, Coca-Cola Refreshments (CCR) and its operating segment in North America.

ExxonMobil CorporationXOM announced its decision to sell its Southern California refinery to New Jersey-based energy company - PBF Energy Inc. - for $537 million.

The refinery currently has about 700 staff members and 700 contractors in its employment. PBF Energy intends to employ these personnel at the plant. Per PBF Energy, the plant will be restarted before the sale is concluded next year.

General Electric CompanyGE inked two agreements to sell its railroad services operations that have been a part of GE Capital. The conglomerate has decided to sell its tank car fleet assets and railcar repair facilities to Marmon Holdings Inc., a part of Berkshire Hathaway Inc. BRK.B . A part of the deal was completed on Sep 30, and the rest is scheduled to close during the fourth quarter.

The leftover railcar leasing business - General Electric Railcar Services LLC - is being bought out by Wells Fargo & Company WFC . The transaction is expected to conclude in the first quarter of 2016.

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has lost 0.7%.

Ticker Last 5 Day's Performance 6-Month Performance
GS -2.8% -8.5%
MMM +0.9% -13.4%
IBM -0.6% -9.8%
BA -4% -12.1%
AAPL -3.4% -11.8%
UNH -4.8% -0.7%
UTX -3% -23.8%
HD +1.7% +3.5%
TRV -1.3% -8.2%
CVX +0.9% -25.2%

Next Week's Outlook

A slump in biotech stocks added to investor concerns this week. Meanwhile, the familiar specter of worries about China continued to plague markets. Markets in China will take a week-long break and investors will not have to be bothered by any such concerns over the next few days.

Meanwhile, economic data has determined market movement on several days of the week. Pending home sales and the ISM Manufacturing Index have been the major disappointments. On the other hand, construction spending and jobs data from ADP were among the positives.

Starting with today's official payroll numbers, several crucial economic reports are lined up for release over the next few days. Other important data expected to release include the ISM Services Index and trade balance numbers. Minutes of the FOMC's meeting is also expected to play a crucial role. If most of these indicate stronger economic conditions, stocks could witness consistent gains in the days ahead.

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AUTOMATIC DATA (ADP): Free Stock Analysis Report

BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report

BOEING CO (BA): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

CATERPILLAR INC (CAT): Free Stock Analysis Report

NIKE INC-B (NKE): Free Stock Analysis Report

PFIZER INC (PFE): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

COCA COLA CO (KO): Free Stock Analysis Report

EXXON MOBIL CRP (XOM): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

GENL ELECTRIC (GE): Free Stock Analysis Report

VOLKSWAGEN-ADR (VLKAY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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