Dow 30 Stock Roundup: J&J, IBM, AmEx Earnings Impress, Microsoft Misses On Revenues

The Dow managed to hit new session highs on the first three days of the week before declining on Thursday. The index gained only marginally during each of these trading sessions but still managed to post a record seven straight session long winning streak. Major components posted commendable earnings results before disappointing revenues from an iconic chipmaker pushed the index lower on Thursday. The Dow has gained 0.4% over the first four trading days of the week.

Last Week’s Performance

The index inched up, increasing 0.05%, to notch up a record closing high for the fourth-straight session on Friday following upbeat U.S. retail sales data. Sales at retail stores and restaurants advanced 0.6% in June from the prior month to a seasonally adjusted $456.98 billion. Sales were mostly led by a jump of 3.9% in building and supply stores, its largest one-month increase since Apr 2010.

The positive retail sales report offset disappointing earnings results from big banks. Meanwhile, industrial output expanded at the fastest monthly rate in 11 months. Industrial output increased 0.6% following a decline of 0.3% in May. Industrial output bounced back last month after a downturn over the past 18 months mostly due to weak overseas demand for many products and a stronger dollar.

The Dow surged 2% over last week. Markets had suffered a bloodbath after the surprise Brexit verdict. But benchmarks recovered quickly to hit fresh highs at the end of almost every trading session.

A slew of factors ranging from hints of fresh stimulus measures by the Bank of England and Bank of Japan to stronger-than-expected domestic earnings pushed stocks higher. The uptick also came on the back of a strong jobs and retail sales report, while oil prices also recouped as markets gathered strength.

The Dow This Week

The index increased by nearly 0.1% on Monday boosted by gains in financial and tech shares. Despite this small gain, the blue-chip index again hit an all-time high. Bank of America Corp’s (NYSE:BAC) upbeat second quarter earnings performance boosted investors’ sentiment and helped bank stocks rally on Monday.

Oil prices fell after a steady rise in crude stockpiles intensified fears of another supply glut. Additionally, an attempted coup in Turkey barely had any influence on Istanbul's Bosphorus Strait as it reopened from a brief closure. The area is known for handling around 3% of global oil shipments. Shares of Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM) declined 0.9% and 0.3%, respectively.

The index gained 0.1% on Tuesday following Johnson & Johnson’s (NYSE:JNJ) commendable quarterly performance. The health-care giant beat expectations and raised its guidance for the year, which eventually helped the Dow post its longest winning streak in three years.

Another Dow component, McDonald's Corporation (NYSE:MCD) saw its shares advance 2.2% on news that it had closed a deal with Nintendo. The fast food giant is expected to be the first advertiser of the widely popular mobile game Pokémon Go. Banking-behemoth, Goldman Sachs Group Inc.’s (NYSE:GS) shares declined 1.2%, following a year-over-year decline in revenues.

The index moved up 0.2% on Wednesday after quarterly results indicated a sharp growth in Microsoft’s (NASDAQ:MSFT) cloud computing business, which helped it to close at yet another record high. The Dow ended at a record high for the seventh day. The blue-chip index also registered its ninth straight session of gains, its longest such winning streak since Mar 2013.

The index declined 0.4% on Thursday, dragged down by declines in transportation and energy stocks. The Dow snapped its seven consecutive sessions of gains, an all-time record winning streak, to end in the red. The blue-chip index took a beating as Intel Corporation’s (NASDAQ:INTC) shares tanked on slower revenue growth.

Revenues of $4 billion in the chipmaker’s key data center group turned out to be lower than the expected figure of $4.16 billion, which eventually dragged the shares of the semiconductor giant down almost 4%. Meanwhile, sales of existing homes rose 1.1% in June from May to a seasonally adjusted rate of 5.57 million, its highest level since Feb 2007.

Components Moving the Index

American Express Company (NYSE:AXP) reported second-quarter 2016 operating earnings per share (EPS) of $2.10, which surpassed the Zacks Consensus Estimate of $1.92 by 9.4%. Moreover, EPS was up 48% year over year, primarily on a decline in expenses. Share buyback also aided the bottom line.

Revenues of $8.24 billion were just ahead of the Zacks Consensus Estimate of $8.21 billion and down 1% year over year due to the impact of a strong dollar on international operations.

American Express reaffirmed its previous guidance for the full year. The company maintained its EPS projection at $5.40–$5.70, reflecting its strong business model (read: American Express (AXP) Beats on Q2 Earnings, Keeps View).

The Goldman Sachs Group, Inc.’s (NYSE:GS) second-quarter 2016 results recorded a positive earnings surprise of 23.6% driven by effective cost control. The company reported earnings per share of $3.72, outpacing the Zacks Consensus Estimate of $3.01. Moreover, the bottom line compared favorably with the year-ago figure of $1.98.

Goldman’s net revenue slumped 13% year over year to $7.9 billion in the quarter under review. Results were mainly affected by lower non-interest income. However, revenues exceeded the Zacks Consensus Estimate of $7.6 billion (read: Prudent Cost Management Drives Goldman (GS) Q2 Earnings).

International Business Machines Corp (NYSE:IBM) reported second-quarter 2016 results wherein both non-GAAP earnings per share of $2.95 and revenues of $20.238 billion easily surpassed the respective Zacks Consensus Estimate of $2.89 and $20.082 billion. However, on a year-over-year basis, the metrics declined 23.2% and 2.8%, respectively.

For 2016, the company continues to projects non-GAAP earnings to be around $13.50. The Zacks Consensus Estimate for the same is currently pegged at $13.50. Also, the company continues to expect to generate free cash flow on the higher end of the earlier expected range of $11 to $12 billion (read: IBM Corp. (IBM) Q2 Earnings Beat; Imperatives Gain Steam).

The Travelers Companies Inc.’s (NYSE:TRV) second-quarter 2016 operating earnings of $2.20 per share beat the Zacks Consensus Estimate of $2.12 by 3.8%. However, the bottom line deteriorated 12.7% year over year.

Net written premiums rose 2.9% year over year to $6.3 billion, attributable to growth in Personal Insurance and domestic Business Insurance net written premiums. Net investment income declined around 13.1% year over year to $549 million. The downside was attributable to lesser returns in the fixed income portfolio owing to lower reinvestment rates.

Total revenue of Travelers inched up 1.1% from the year-ago quarter to $6.8 billion. Revenues beat the Zacks Consensus Estimate of $6.7 billion by 1.7% (read: Travelers (TRV) Q2 Earnings Beat, Down Y/Y on Cat Loss).

UnitedHealth Group Inc. (NYSE:UNH) reported second-quarter 2016 earnings of $1.96 per share, beating the Zacks Consensus Estimate of $1.89. Earnings improved 13% year over year. UnitedHealth posted revenues of $46.5 billion, outperforming the Zacks Consensus Estimate of $45.3 billion.

The top line grew 28% year over year. The increase was an outcome of business expansion in both health care benefits and health care services. UnitedHealth tightened its 2016 adjusted earnings guidance to the range of $7.80 to $7.90 per share and GAAP earnings to $7.25 to $7.40 per share (read: UnitedHealth (UNH) Beats on Q2 Earnings: Will Stock Gain?).

Intel reported second quarter fiscal 2016 earnings of 59 cents per share (excluding special items), surpassing the Zacks Consensus Estimate of 52 cents per share. Revenues of $13.53 billion matched the Zacks Consensus Estimate but increased 2.53% year over year.

Intel guided third-quarter revenue of around $14.9 billion (+/-$500 million), up 10.1% sequentially and 3.0% from the June quarter of 2015 (better than the Zacks Consensus Estimate of $14.58 billion). The non-GAAP gross margin is expected to be around 62% (+/-2 percentage points).

Johnson & Johnson’s second-quarter 2016 earnings came in at $1.74 per share, beating the Zacks Consensus Estimate of $1.67 per share and increasing 1.8% from the year-ago period.

Sales also surpassed expectations, coming in at $18.5 billion -- the Zacks Consensus Estimate was $17.9 billion. Sales increased 3.9% from the year-ago quarter, reflecting an operational increase of 5.3% and a negative currency impact of 1.4%.

J&J now expects 2016 earnings in the range of $6.63–$6.73 per share on revenues of $71.5 billion to $72.2 billion. At the time of releasing first-quarter results, the company had guided toward earnings of $6.53–$6.68 per share on revenues of $71.2 billion to $71.9 billion.

The Zacks Consensus Estimate for earnings and revenues is $6.60 per share and $71.6 billion, respectively (read: J&J (JNJ) Stock Gains on Q2 Earnings and Improved Outlook).

Microsoft reported fiscal fourth-quarter 2016 earnings per share adjusted for Windows 10 deferrals and currency effect of 69 cents, which beat the Zacks Consensus Estimate of 58 cents. Increased investment in the cloud impacted margins in the last quarter although FX was surprisingly an offsetting factor. All segments did better than guided.

Reported revenue of $20.61 billion was up 0.4% sequentially but down 7.1% from last year, missing the Zacks Consensus Estimate by 6.8%. For the first quarter, Microsoft expects total revenue of between $21.2 billion and $21.9 billion (read: Microsoft 4Q16 Earnings Show Strengthening Cloud Position).

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 0.2%.

Next Week’s Outlook

Earnings are likely to dominate most of next week’s trading sessions as several major releases are still lined up for release. Most earnings results for the index have been on the brighter side, with a few slipping on revenue estimates.

Economic data have had little impact this week, but are likely to do so in the days ahead. This is because next week’s economic releases include data on housing, durable orders and GDP. However, current market conditions indicate that the Dow may soon return to its winning ways.

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