Dow 30 Stock Roundup: Wal-Mart, Home Depot Beat, Cisco Earnings In Line

The Dow declined over the week following a series of encouraging economic reports and indications that a rate hike was likely in June. Apple Inc. (NASDAQ:AAPL) regained most of its luster after Warren Buffett’s company picked up a substantial stake in the iPhone maker. Meanwhile, minutes of the Federal Open Market Committee’s (FOMC) April’s policy meeting indicated a rate hike was likely next month. Oil prices continued to fluctuate. The Dow lost 0.5% over the first four trading days of the week.

Last Week’s Performance

The index decreased 1.1% despite encouraging retail sales data, following decline in oil prices and weak quarterly earnings results. Oil prices dropped on Friday following strengthening of the dollar. The U.S. Dollar Index increased 0.1% to 94.307, reaching its highest level since Apr 28. While the euro decreased to about $1.13 against the greenback, the dollar increased to around 108.7 yen. Russia’s Energy Minister Alexander Novak’s discouraging comments also weighed on oil prices.

Dow components Chevron Corp (NYSE:CVX) and Exxon Mobil Corp (NYSE:XOM) fell 1.4% and 1.1%, respectively. U.S. retail sales rose 1.3% last month, higher than the consensus estimate of 0.8% rise, reaching its highest level since March 2015. The reading was also favorable compared to March’s fall of 0.3%.

The blue chip index registered its third straight weekly decline for the first time since the week ended Jan 15. For the week, the Dow declined 1.2% following losses in consumer discretionary and financial services stocks. Discouraging earnings reports and weak global economic data had a negative impact on key U.S. indexes.

Additionally, Apple hit its worst closing level during the week since Jun 2014, following concerns over a slump in iPhone sales. In economic news, rise in initial claims negatively impacted the market, but decline in crude inventories boosted oil prices. Further, disruptions in Nigeria and Canada reduced crude oversupply worries by a significant extent, which also pushed oil prices upward.

The Dow This Week

The index increased 1% on Monday following rebound in oil prices and strong gains in Apple’s shares. Oil prices rebounded after Goldman Sachs Group, Inc. (NYSE:GS) reportedly said that oil market is facing a deficit in crude production following production disruptions in Nigeria and Canada. Goldman also said that "the oil market has gone from nearing storage saturation to being in deficit much earlier than" the company expected.

Oil prices reached its highest settlement in six months, which in turn boosted energy stocks. Shares of Apple advanced 3.7% after a regulatory filing by Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRKa) BRK.B revealed that the company has acquired 9.8 million shares or a $1 billion stake in Apple during the first quarter. This was Apple’s best one-day performance since March.

The index decreased 1% on Tuesday after a series of encouraging economic reports heightened worries about a sooner-than-expected Fed rate hike. The Consumer Price Index increased 0.4% in April, in line with the consensus estimate. Housing starts increased 6.6% from March to an annual rate of 1,172,000 in April.

Industrial production rebounded from a 0.9% decline in March to rise by 0.7% in April, posting its highest percentage increase since Nov 2014. Fed officials’ comments hinting that two to three rate hikes were likely this year weighed on key U.S indexes. Meanwhile, WTI oil prices reached a seven month high level after analysts projected U.S. crude inventories would fall by nearly 3.2 million barrels last week.

The index declined only marginally on Wednesday after minutes from FOMC’s April policy meeting indicated a rate hike was likely in June. Stocks from sectors like utilities and telecom that are likely to be affected by a rate hike declined. However, increasing rate hike possibilities led financials stocks higher.

The minutes of the FOMC’s two-day policy meeting indicated that most of the Fed officials were optimistic about a rate hike in Fed’s June meeting. According to the minutes: “most participants judged that if incoming data were consistent with economic growth picking up in the second quarter” then the Fed may opt for a hike next month.

Rate sensitive sectors like utilities and telecom slumped following increasing possibility of a rate hike. Separately, oil prices decreased following a stronger dollar, with the U.S. Dollar index rising 0.1% to 87.56 after FOMC minutes raised rate hike possibilities.

The index increased 0.5% on Thursday following continuing worries over a rate hike in June. Moreover, New York Fed President William Dudley said he is "quite pleased" to see strong possibilities of a rate hike in June-July. Dudley also said the Fed is “on track to satisfy a lot of the conditions" for a rate rise.

Richmond Fed President Jeffrey Lacker also showed support for a June rate hike. Initial claims decreased 16,000 to 278,000 in the week ending May 14, falling for the first time in last four weeks. Initial claims remained below 300,000 for 63 consecutive weeks, its longest stretch since 1973. Also, the 4-week moving average came in at 275,750, compared to 268,250 reported last week.

Components Moving the Index

Wal-Mart Stores Inc. (NYSE:WMT) fiscal first quarter 2017 earnings of 98 cents per share beat the Zacks Consensus Estimate of 88 cents by 11.4% and exceeded management’s guided range of 80 to 95 cents per share. However, it declined 4.9% from the year-ago earnings from continuing operations of $1.03 per share.

Total revenue of the retailer was $115.9 billion (including membership and other income). Revenues beat the Zacks Consensus Estimate of $112.7 billion by 2.8% and increased 0.9% year over year.

In the second quarter of fiscal 2017, earnings are expected in a range of 95 cents to $1.08 per share, compared with the prior-year quarter’s earnings of $1.08 per share. Wal-Mart expects U.S. comp sales growth of around 1% for the 13-week period ending Jul 29 compared with 1.5% comps growth last year.

Cisco Systems (NASDAQ:CSCO) reported third-quarter fiscal 2016 earnings of 50 cents, in line with the Zacks Consensus Estimate. The adjusted earnings per share figure exclude one-time items but include stock-based compensation expenses.

Revenues increased 0.6% sequentially but declined 1.1% year over year to $12.0 billion and came slightly above the Zacks Consensus Estimate of $11.9 billion. On a year-over-year basis, products (74% of total revenue) were down 4.8% to $8.9 billion but Services (26%) rose 11.2% to $3.1 billion.

For the fourth quarter of fiscal 2016, Cisco expects revenues to increase in the range of 0% to 3% on a year-over-year basis. The Zacks Consensus Estimate is pegged at 53 cents. GAAP earnings per share are expected in the range of 48 cents to 53 cents.

The Home Depot Inc. (NYSE:HD) fiscal first-quarter adjusted earnings of $1.44 per share, which increased 19% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.33.

Net sales advanced 9% to $22,762 million from $20,891 million in the year-ago quarter. The company’s overall comparable-store sales (comps) increased 6.5%, while comps in the U.S. grew 7.4%. Sales gained on a weekly increase in demand due to changes in weather conditions.

Home Depot raised its sales, comps and earnings forecasts for fiscal 2016. The company now projects sales growth of 6.3% compared with 5.1%–6% expected earlier. Comps are anticipated to increase nearly 4.9%, above the previous guidance range of 3.7%–4.5%.

Home Depot now envisions diluted earnings per share to grow about 14.8% year over year to $6.27. The company had earlier expected earnings per share to increase 12–13% year over year, coming in the range of $6.12–$6.18.

3M Company (NYSE:MMM) , recently secured a contract worth $92.7 million from the Defense Logistics Agency to manufacture 177,000 pieces of body armor plates. The company is expected to start production and delivery of the goods shortly.

Designed to meet the stringent performance requirements of the U.S. Department of Defense, the body armor plates function as protective gears for soldiers, sailors, airmen and marines.

United Technologies Corp.’s (NYSE:UTX) unit Otis was recently awarded a contract to install its high-speed elevators at the esteemed Altair project in Colombo, Sri Lanka. On completion, this will be the tallest residential building in Sri Lanka, having the country's fastest elevators. Elevators Private Limited, a joint venture (JV) entity between Otis and Aitken Spence, has taken up the Altair project.

Per the plan, the project will likely consist of 68 floors, including two towers with one leaning against the other. Otis is expected to install 19 super-fast elevators, which will travel at a speed of 5 meters per second. Out of these 19 elevators, 7 will be exported to Sri Lanka from Otis India's Bengaluru factory.

Pfizer Inc. (NYSE:PFE) announced positive results from two phase III studies (one in adolescents and one in young adults) on Trumenba (meningococcal group B vaccine), for providing protection against serogroup B meningococcal disease.

The randomized, placebo-controlled, observer-blinded studies evaluated the immunogenicity of Trumenba against invasive meningococcal B (MnB) strains representative of prevalent strains in adolescents (aged 10–18 years) and in adults (aged 10–25 years).

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 declined 1.5%.

Next Week’s Outlook

Oil prices have fluctuated over the week but there do not seem to be having a major impact on markets as of now. Possibilities of a rate hike in June have taken center stage. Safe haven stocks like telecom and utilities have come under severe pressure as a result. This is a direct outcome of the encouraging economic indicators released through the week.

Next week features crucial data on home sales and durable orders before the all-important GDP report. If most of these are encouraging, it is likely that stocks could face further pressure on rate hike fears in the days ahead.