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Dow 30 Stock Roundup: Disney's Results Disappoint, GE Plans $250M Acquisition

The Dow remained nearly flat over the week as oil prices continued to determine market direction. Earnings also had a limited impact on the proceedings. Disappointing earnings results from a key impact led to losses on Wednesday. Initial claims touched a record high, putting another rate hike in doubt since employment numbers for April have also been dismal. A tech major’s record fall also hurt the index, which was offset by gains in consumer staples and telecom stocks. The Dow has remained nearly unchanged over the first four trading days of the week.

Last Week’s Performance

The index increased 0.5% on Friday after gains in materials stocks and oil prices rally offset the negative impact of disappointing job reports. The U.S. economy created a total of 160,000 jobs in April, considerably lower than March’s downwardly revised job number of 208,000.

Moreover, the unemployment rate for April was in line with the consensus estimate and March’s rate of 5%. Further, the labor force participation rate fell 62.8%, declining for the first time in 7 months.

However, average hourly earnings gained 0.3% or 8 cents in April from the previous month’s figure to $25.53 per hour, in line with the consensus estimate. This was the third highest monthly gain in a year. Disappointing jobs report reduced possibilities for any immediate Fed rate hike, which had a positive impact on gold prices.

Moreover, oil prices increased after the wildfire in Fort McMurray, the oil city of Canada, continued to weigh on its crude production. Also, Baker Hughes BHI reported that the U.S. oil rig count declined for the seventh week, reaching its lowest level since Oct 2009. Rise in gold and oil prices had a positive impact on material stocks.

For the week, the Dow declined 0.2% following losses in energy and financial services stocks. Discouraging earnings reports and weak global economic data also had a negative impact on the key U.S. indexes. The Dow posted its second straight weekly losses for the first time since the week ended Feb 12.

Oil prices declined during the week, following China’s growth worries and concerns over global crude supply glut. Rise in crude production in Iraq, Saudi Arabia and Iran, and weekly increase in U.S. commercial crude oil inventories raised worries over global crude oversupply.

Weaker-than-expected manufacturing data of China and Eurozone’s dismal economic outlook raised global growth worries and weighed on Fed rate hike chances, which in turn resulted in the sell-off of financial services stocks.

In economic news, ISM manufacturing index and non-farm business sector labor productivity decreased and initial claims increased. Rise in construction spending was lower than the consensus estimate.

The Dow This Week

The index declined 0.2% on Monday even after gains in healthcare stocks offset declines in energy stocks. Oil prices declined after the impact of Canadian wildfire on crude output declined. Moreover, Saudi Arabia’s oil minister Ali al-Naimi was replaced by the kingdom’s state oil company, Saudi Aramco’s chairman Khalid al-Falih. This in turn raised uncertainty over the oil policy of one of the leading oil producing countries of the world.

Also, crude inventories in the delivery hub of Cushing, Oklahoma have reportedly increased 1.4 million barrels last week. Both the WTI crude and Brent crude fell 2.8% and 4% to $43.44 per barrel and $43.63 a barrel, respectively.

Additionally, as per preliminary data reported by China’s General Administration of Custom, its oil imports increased 7.6% last month from a year ago. However, imports and exports declined 10.9% and 1.8%, respectively, year over year. Meanwhile, foreign exchange reserves of the world’s second largest economy rose for the second consecutive month to $3.22 trillion last month.

The index increased 1.3% on Tuesday following a rebound in oil prices and gains in shares of Amazon.com Inc. AMZN. Oil prices rebounded after disruptions in Nigeria and Canada reduced crude oversupply worries to a significant extent. A series of militant attacks on oil infrastructure in Nigeria last week had reduced its crude production to 1.69 million barrels per day (bpd), hitting its lowest level in 22 years.

Moreover, in a monthly report issued yesterday, the U.S. Energy Information Administration (EIA) raised its guidance for crude prices as well as production for 2017. Both the WTI crude and Brent crude rose 2.7% and 4.2% to $44.66 per barrel and $45.52 a barrel, respectively.

Amazon’s shares rose 3.4% crossing the $700 mark for the first time to close at a record high of $703.07 after a Bernstein analyst said Amazon is undervalued and is likely to rise by almost 50% to reach the $1000 per share mark by 2017.

The index decreased 1.2% on Wednesday following the slump in shares of The Walt Disney Company DIS. Decline in Disney’s and other retailers’ shares dragged retail stocks down, which in turn had a negative impact on the broader consumer discretionary sector. The Dow registered its worst one-day decline since Feb 11. Shares of Disney declined 4%, posting the worst one-day fall since Jan 15, after the company missed earnings estimates for the first time in nearly five years.

However, oil prices rose after the EIA reported that U.S. commercial crude oil inventories fell 3.4 million barrels to 540 million for the week ended May 6. This was in sharp contrast to analysts’ expectations of a 714,000 barrel rise. Moreover, total motor gasoline inventories fell by 1.2 million barrels last week. Fall in crude oil and gasoline inventories had a positive impact on oil prices.

The index gained 0.1% on Thursday even after shares of Apple Inc. AAPL declined to a two-year low. Shares of Apple hit their lowest closing level since Jun 2014, following concerns over a slump in iPhone sales. Reportedly, its Taiwanese suppliers expect a fall in iPhone orders in the latter part of 2016 following weak demand. Total market cap of Apple declined to $494.7 billion, lower than Alphabet Inc.’s GOOGL market cap of $494.9 billion, making Google the world’s biggest company.

However, gains in telecom and consumer staples stocks helped markets offset some of the day’s losses. Some of its key holdings gained, such as Verizon Communications Inc. VZ which increased 0.6%. Among consumer staples stocks, Procter & Gamble Company PG and Coca-Cola Company KO increased 0.3% and 0.8%, respectively. Meanwhile, seasonally adjusted initial claims increased to their highest level since Feb 28, 2015

Components Moving the Index

Disney disappointed investors after missing earnings estimates for the first time in nearly five years. The company reported second-quarter fiscal 2016 earnings per share of $1.36 that fell short of the Zacks Consensus Estimate of $1.40. Nonetheless, the company’s earnings increased 11% year over year.

On the other hand, revenues increased 4% year over year to $12,969 million but missed the Zacks Consensus Estimate of $13,255 million. Notably, the company’s top line had beaten estimates in the previous quarter.

The company’s lower-than-expected results are primarily attributed to fall in Cable Networks and Consumer Products & Interactive Media businesses. Falling subscriber base and higher programming costs of these businesses have been a cause of worry for investors for quite some time now.

In the reported quarter, ESPN’s ratings were affected by a change in time of bowl games. ESPN’s ad revenues declined 13%. So far, in the fiscal third quarter ESPN ad revenues have increased 5% year over year.

General Electric Company’s GE division GE Power recently inked an agreement to acquire Doosan Engineering & Construction’s Heat Recovery Steam Generator (HRSG) business. The acquisition is likely to be worth $250 million.

The HRSG technology is a combined-cycle power plant that captures the exhaust heat from the gas turbine.  Water is converted into steam, which in turn is used to drive a steam turbine to produce additional power output. This technology can help generate approximately 33% of the plant’s total power output.

As a business unit of Doosan Engineering & Construction, the acquired business manufactures and distributes HRSGs to combined-cycle power plants worldwide.

JPMorgan Chase & Co.’s JPM $150 million accord to settle investor claims related to the London Whale case was approved by the U.S. District Judge George Daniels in New York. The approval will bring an end to a suit filed in 2012, which accused the bank officials of insufficient actions to avoid losses in the London Whale trading scandal.

According to the judge, the accord in the class-action suit “is adequate and reasonable.” The case, filed in the U.S. District Court for the Southern District of New York, was led by public pension funds in the U.S. states of Arkansas, Ohio and Oregon and in Sweden.

DuPont DD has announced a new 3D anti-counterfeiting film to make the packaging industry better equipped at preventing duplications. The company has developed the innovative film using its own imaging technology, which facilitates the integration of anti-counterfeiting features directly with the product’s label. DuPont will formally showcase the product at the drupa 2016 trade fair to be held in Germany from May 31–June 10.

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 gained 0.7%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

+1.4%

+9.3%

GS

-0.9%

-17%

IBM

+2.8%

+13%

HD

-0.3%

+11.8%

BA

+2.4%

-5.7%

UNH

-3.8%

+16.5%

MCD

-1%

+18.3%

TRV

+1.7%

+0.6%

JNJ

+0.1%

+14.4%

AAPL

-2.9%

-19.6%

Next Week’s Outlook

Oil prices have guided market proceedings to a significant extent this week. Meanwhile, job market data has been particularly uninspiring. Of course, this has calmed rate hike fears, providing investors with respite on at least one front. As earnings season winds down, economic data will acquire greater significance. Several crucial reports are scheduled for release in the days ahead. This includes data on retail sales, inflation, housing and industrial production. These reports are likely to influence market proceedings to a great extent in the week ahead.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
DISNEY WALT (DIS): Free Stock Analysis Report
 
AMAZON.COM INC (AMZN): Free Stock Analysis Report
 
VERIZON COMM (VZ): Free Stock Analysis Report
 
COCA COLA CO (KO): Free Stock Analysis Report
 
DU PONT (EI) DE (DD): Free Stock Analysis Report
 
APPLE INC (AAPL): Free Stock Analysis Report
 
GENL ELECTRIC (GE): Free Stock Analysis Report
 
BAKER-HUGHES (BHI): Free Stock Analysis Report
 
PROCTER & GAMBL (PG): Free Stock Analysis Report
 
ALPHABET INC-A (GOOGL): Free Stock Analysis Report
 
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