Dow 30 Stock Roundup: Nike Beats On Earnings, AmEx Raises Dividend

The Dow staged a spectacular rebound last week following losses after a surprise Brexit verdict. Despite opinion polls predicting a vote in favor of remaining within the EU, Britain ultimately voted to leave the economic bloc. This led to losses on the first two trading days of the week. However, investors ultimately sought out oversold stocks leading to back-to-back gains on the last three days.

Brexit Fallout

The index plunged 3.4% on Friday, June 24, posting its eighth largest points decline ever. Heavy losses followed a shock verdict from Britain’s referendum which indicated that a marginally higher percentage of voters had opted to leave the EU. The blue-chip index also registered its largest percentage fall since Aug 2015 and entered negative territory for the year.

The global financial sector was badly hit with the STOXX Europe 600 Banks index registering a slump of 14%, the largest since 1987. Shares of Goldman Sachs Group, Inc. (NYSE:GS) , which generates nearly 20% of its revenue from its U.K. operations, declined 7.1%, turning out to be the biggest decliner for the Dow.

Separately, the final reading of consumer sentiment index released by University of Michigan came in at 93.5 in June, below the consensus estimate of 94.2. Durable orders decreased 2.2% in May to $230.7 billion.

Last Week’s Performance

The index lost 1.5% last Monday after Britain’s decision to “Leave” the European Union continued to drag the benchmarks into negative territory. The Dow posted its biggest two-session decline in nearly 10 months and also closed below its 200-day average for the first time in the last three months.

Energy, materials and financial stocks were the worst performers for the session. Only the natural safe-havens, utilities and telecom, managed to end in positive territory. Moreover, the pound hit a 31-year low of $1.3197 late Monday, which in turn had a negative impact on U.S. companies which generate a major portion of their sales from overseas operations.

The index rebounded last Tuesday, gaining 1.6%, after two days of Brexit induced losses. Investors grew optimistic and sought assets mostly from beaten down sectors. Oil prices recovered on a weaker dollar, strikes in Norway and production disruptions in Venezuela. Recent strikes of oil workers in Norway have negatively impacted its crude output.

The “third” estimate from the Bureau of Economic Analysis showed that first quarter output of goods and services increased at an annual rate of 1.1%, higher than the consensus estimate of a 1% increase. According to S&P/Case-Shiller Home Price data, 20-City and 10-City composite indexes increased in April. The Consumer Confidence Index advanced to 98 in June from 92.4 in May.

The index ended higher again last Wednesday, moving up 1.6%, following a strong oil price rally and a reduction in “Brexit” concerns. Oil prices continued to rise after the U.S. Energy Information Administration (EIA) reported a decline in U.S. commercial crude oil inventories. Moreover, oil workers’ strikes in Norway and production disruptions in Venezuela continued to weigh on crude output.

Pending Home Sales Index decreased 3.7% from April to 110.8 in May, after three consecutive months of gains. Personal income and disposable personal income (DPI) each increased by 0.2% in May. Personal spending increased 0.4% in May, registering its second straight monthly increase. Additionally, personal consumption expenditure price index (PCE) rose 0.3%.

The index increased 1.3% last Thursday following expectations that Bank of England will most likely implement additional stimulus measures to boost its economy. Governor of Bank of England Mark Carney said "the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer."

Moreover, shares of The Hershey Company (NYSE:HSY) increased 16.8% on news of a possible takeover bid from Mondelez International, Inc. (NASDAQ:MDLZ) . However, Hershey rejected the acquisition offer of $23 billion in cash and stock, or $107 per share.

Strong gains for three successive days helped the index post its highest weekly gain for the year. The Dow moved up by only 0.1% on Friday, but gained more than 3% over last week, riding on the rebound which followed the losses resulting from Brexit. However, trading volumes were at their lowest since Jun 23.

The Dow increased 0.8% in June. Investors remained cautious for most of the month over a possible exit of the U.K. from the European Union. An unanticipated Brexit led the key indexes to deliver a sluggish performance. Moreover, Fed’s reluctance to hike rates also raised doubts about the strength of the domestic economy. May’s discouraging jobs report, a low level of business investment and lower–than-expected inflation did little to help the Fed take a rate hike call.

The index gained 1.9% over the last quarter Energy stocks were the biggest gainer during the quarter, while tech stocks were the biggest laggards. Oil prices posted quarterly gains due to a weaker dollar, a fall in the U.S. rig count, rise in gasoline consumption and worldwide outages.

Components Moving the Index

NIKE Inc. (NYSE:NKE) posted fourth-quarter earnings per share of 49 cents which remained flat year over year, while exceeding the Zacks Consensus Estimate by a penny. Revenues of this sportswear retailer advanced 6% to $8,244 million in the quarter. However, the figure fell short of the Zacks Consensus Estimate of $8,261 million due to the impact of currency headwinds.

The company’s earnings for fiscal 2016 came in at $2.16 per share, marking year-over-year growth of 17%, while beating the Zacks Consensus Estimate by a penny. Total revenue for the fiscal rose 6% to $32,376 million, though it missed the Zacks Consensus Estimate of $32,393 million.

For the first quarter of fiscal 2017, the company expects revenues to grow in the mid single-digit range. Gross margin is projected to fall by nearly 100 bps in the quarter, mainly due to currency headwinds.

Considering all factors, management anticipates fiscal 2017 revenue to grow at a high single-digit rate while, on a currency neutral basis, it expects the same to increase in a high single-digit to low double-digit range (read: NIKE's (NKE) Q4 Earnings Beat, Sales Miss; Stock Down).

American Express Co. (NYSE:AXP) disclosed that the Board of Governors of the Federal Reserve System has waved a green flag to the company’s capital plan submitted on Apr 5. The plan submission was part of the 2016 Comprehensive Capital Analysis and Review (CCAR).

The passage of the capital plan by American Express signifies that planned capital distributions, such as dividends and share repurchases, are viable and acceptable in relation to the regulatory body’s minimum capital requirements.

American Express investors will now receive an increased dividend of 32 cents per share, which translates into a hike of 10% over the previous dividend payout. The company will also buy back up to $3.3 billion of common shares during the CCAR approval period of the third quarter of 2016 to the second quarter of 2017 (read: American Express to Hike Dividend: Better Days Ahead?).

Cisco Systems (NASDAQ:CSCO) recently announced its plans to acquire a cloud-based security company, CloudLock, for $293 million in cash and stock in a bid to expand its security portfolio. Cisco expects the acquisition to close in the first quarter of fiscal 2017, subject to customary closing conditions.

CloudLock will be incorporated into Cisco's networking and security business group under the leadership of senior vice president and general manager, David Goeckeler. Waltham, MA-based CloudLock provides a cloud platform that offers online security solutions for business users (read: Cisco to Boost Security Portfolio with CloudLock Acquisition).

General Electric Company (NYSE:GE) has recently inked agreements with three separate buyers to divest the majority of GE Capital’s restaurant franchise financing assets in the U.S. The transactions are expected to be completed by the third quarter of 2016.

General Electric sold assets in the Southwest and Southeast to First Horizon National Corporation, a Tennessee-based bank, with assets of approximately $27 billion. Assets in the Midwest and part of the West were sold to Wintrust Financial Corporation, an Illinois-based bank with approximately $23 billion in assets. GE Capital’s assets in the East were sold to Sterling National Bank, a $13-billion-asset holding bank headquartered in New York. The transactions included about $1.4 billion in ending net investment (ENI (MI:ENI)) and are likely to yield $0.2 billion of capital to General Electric (read: GE Inks Deals to Divest US Restaurant Finance Assets).

Intel Corporation (NASDAQ:INTC) is reportedly considering the sale of Intel Security, its cyber security unit. A recent report in the Financial Times indicated that a consortium of private equity firms may purchase the division at a price close to or even higher than what Intel had originally paid.

Formerly known as McAfee, Intel acquired this antivirus software maker back in 2010 with a view to secure its chips and improve their threat detection power with McAfee’s security functionality.

Even after six years of its acquisition by Intel, the division hasn’t shown any spectacular result. The original plan to embed McAfee’s cyber security technology in chips is still incomplete. The unit hasn’t been able to contribute significantly to Intel’s revenues (read: Will Intel Offload its McAfee Cyber Security Division?).

Johnson & Johnson (NYSE:JNJ) and AbbVie Inc.’s (NYSE:ABBV) Imbruvica got a fourth Breakthrough Therapy Designation (BTD), this time for a non-cancer indication. The FDA granted BTD to Imbruvica for the treatment of chronic graft-versus-host-disease (cGVHD) after one or more lines of systemic therapy have failed. Imbruvica was also granted Orphan Drug Designation (ODD) for the indication (read: AbbVie, J&J's Imbruvica Gets Breakthrough Therapy Status).

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 4.2%.

Next Week’s Outlook

Markets have staged a strong rebound following Brexit jitters. Investors have sought out oversold stocks and markets have posted strong gains. However, the global markets continue to feel the impact of the Brexit vote. Additionally, concerns about the economy, especially the job market continue to linger. Several major important economic reports are lined up for release this week. The most important of these will provide private and official data on employment. These are likely to play an important role in determining market direction in the days ahead.

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