Dow 30 Stock Roundup: Pfizer's Big Buy, Boeing's Big Win

The Dow suffered losses over the week, weighed down by a number of factors. The specter of falling crude prices returned to haunt investors, following the release of data which raised concerns about oversupply. Meanwhile, a major pharma manufacturer faced allegations of overpricing, leading to losses for the entire healthcare sector. The only saving grace was the gain that came on Tuesday from a favorable home sales report and better-than-expected data on Europe.

Last Week’s Performance

The index lost more than 0.2% last Friday following concerns over chances of a sooner-than-expected rate hike. Fears regarding a rate hike heightened following hawkish comments from San Francisco Fed President John Williams.

Williams said that a “sooner rather than later” rate increase might be appropriate as the domestic economy is strengthening and is maintaining “good momentum.” Williams’ comments weighed on debt heavy sectors like utilities and telecom. Shares of Dow component Verizon (NYSE:VZ) lost 0.8%.

The Dow also lost 0.1% over last week. Rise in rate hike possibilities following hawkish comments from key Fed officials weighed on benchmarks. However, factors including crude hitting one month high, Fed’s July meeting minutes, and a rise in industrial output and home building curtailed some of the weekly losses.

The Dow This Week

The index slipped 0.1% on Monday after a decline in crude prices weighed on the energy sector. Analysts of Morgan Stanley (NYSE:MS) said that any agreement between major oil producing nations to freeze crude production is "highly unlikely." Moreover, China’s exports of gasoline and diesel last month advanced 145.2% and 181.8% year over year to 970,000 tons and 1.53 million tons, respectively.

Also, U.S. oil rig counts rose for eight straight weeks and the possibility of an increase in crude exports in Nigeria and Iraq also surfaced. All these factors had a negative impact on crude prices. Moreover, investors remained cautious ahead of Fed Chief Janet Yellen’s speech on U.S. economic policy at Jackson Hole, Wyoming on Friday.

The Dow gained 0.1% on Tuesday on upbeat new-home sales data and better-than-expected European private sector data. New home sales jumped 12.4% to a seasonally adjusted annual rate of 654,000 in July, reaching its highest settlement since October 2007. July’s reading beat the consensus estimate of 575,000 and soared 31.3% year over year.

Moreover, economic data indicated that the Eurozone’s economic recovery has improved this month, reducing concerns over the impact of “Brexit”. IHS Markit Ltd. reported that Europe’s composite Purchasing Managers Index increased to 53.3 in August from 53.2 in July. Also, manufacturing and service PMI came in at 51.8 and 52.8, respectively.

The index lost 0.4% on Wednesday following a decline in Mylan’s (NASDAQ:MYL) shares, which had a negative impact on biotech stocks and eventually on the broader healthcare sector. Strong political pressure on Mylan for over-pricing its life saving drug, EpiPen, led shares of the company to fall. The Dow reached its lowest settlement level since early August.

Moreover, a bigger-than-expected rise in crude inventories also weighed on investor sentiment. Moreover, sales of existing homes declined 3.2% in July from June to a seasonally adjusted rate of 5.39 million.

The index decreased 0.2% on Thursday as investors refrained from placing big bets ahead of Yellen’s Jackson Hole speech. Moreover, losses in healthcare and consumer discretionary stocks also weighed on investor sentiment. Poor earnings results from some retailers pulled down the consumer discretionary sector.

Meanwhile, Kansas City Fed President Esther George said that after observing the job market, inflation and Fed’s forecast for the same, she considers “that it would be appropriate” to raise rates gradually. Further, Dallas Fed President Robert Kaplan said that following “very good, healthy financial conditions,” it would be appropriate to raise rates.

Components Moving the Index

Pfizer Inc. (NYSE:PFE) and Medivation, Inc. (NASDAQ:MDVN) announced that they have entered into a definitive merger agreement under which Pfizer will acquire Medivation for $81.50 per share in cash or a total enterprise value of about $14 billion.

The acquisition, slated to close in the third or fourth quarter, is expected to be immediately accretive to Pfizer’s earnings by about 5 cents in the first full year after close with additional accretion and growth expected thereafter. Pfizer does not expect the deal to affect its guidance for 2016. (Read: Pfizer to Buy Medivation for $14B, Boost Cancer Franchise)

In a separate development, Pfizer announced that it has entered into an agreement to acquire the rights to AstraZeneca plc’s (NYSE:AZN) late-stage small-molecule anti-infectives business, primarily in the ex-U.S. markets.

The transaction will give Pfizer the rights to Zavicefta, which gained approval in the EU in Jun 2016, for complicated urinary tract infections (cUTI), complicated intra-abdominal infections (cIAI), hospital-acquired pneumonia/ventilator-associated pneumonia (HAP/VAP), and for the treatment of aerobic gram-negative infections in adult patients with limited treatment options.

The portfolio also includes marketed agents, Merrem/Meronem and Zinforo; and pipeline candidates, ATM-AVI and CXL. Under the terms of the agreement, AstraZeneca will receive an upfront payment of $550 million from Pfizer upon the closing of the transaction. Pfizer will also make a deferred payment of $175 million in Jan 2019.

Moreover, AstraZeneca is eligible to receive up to $250 million in milestone payments, and up to $600 million in sales-related payments from Pfizer. In addition, AstraZeneca will earn tiered royalties on sales of Zavicefta and ATM-AVI in certain markets.

The transaction is slated to close in the fourth quarter of 2016. (Read: Pfizer to Acquire Rights to AstraZeneca's Antibiotics Business)

The Boeing Co. (NYSE:BA) clinched the much anticipated $2.8 billion contract form the U.S. Air Force for the first lot of 19 KC-46 Pegasus aerial tankers. Recently, the Air Force won permission from the Pentagon to sign two production contracts with Boeing.

The contract includes the first two production batches of seven and 12 aircraft as well as spare parts. Boeing expects to build a total of 179 of the 767-based refueling aircraft including the future options. The Air Force will use KC-46 to replace its fleet of KC-135 tankers. (Read: Boeing Wins $2.8B Air Force Contract for KC-46 Tankers)

General Electric Company (NYSE:GE) and Hitachi, Ltd. (OTC:HTHIY) recently entered into a definitive agreement with a provider of nuclear components, BWXT Canada Ltd. to divest the GE Hitachi Nuclear Energy Canada Inc. unit for an undisclosed amount. The deal is expected to close by the end of 2016.

Headquartered in Lynchburg, VA, BWX Technologies, Inc. (NYSE:BWXT) is a power generation company, supplying precision manufactured components and services to the commercial nuclear power industry. (Read: GE Continues Restructuring, Divests Nuclear Energy Unit)

The Goldman Sachs Group, Inc. (NYSE:GS) has announced yet another round of job cuts in New York, according to a Bloomberg report. This is line with its continuing strategy to lower workforce in its investment banking unit. As per the notice to the New York Labor Department, Goldman plans to eliminate 15 additional jobs by the end of 2016. While the affected employees were notified in July about the impending cuts, the company will begin the process on Oct 3.

Goldman has been retrenching workers across various lines of businesses since the beginning of this year. Notably, this can be termed as the fifth round of job cuts in New York this year, with prior announcements of 408 cuts (in batches). As of Jun 30, 2016, the company had around 34,800 employees. (Read: Goldman to Cut More Investment Banking Jobs in New York)

Johnson & Johnson’s (NYSE:JNJ) subsidiary Janssen-Cilag International NV announced that it has filed a type II variation application with the European Medicines Agency seeking label expansion for its immunotherapy, Darzalex, in combination with Revlimid (an immmunomodulatory agent) and dexamethasone, or Velcade (a proteasome inhibitor/PI) and dexamethasone, for the treatment of adult patients with relapsed multiple myeloma patients who have received at least one prior therapy.

The EU filing came a week after the submission of a supplemental biologics license application for a label expansion of Darzalex to the FDA. The company is looking to get Darzalex approved in combination with Revlimid and dexamethasone, or Velcade and dexamethasone, for the treatment of patients with multiple myeloma who have received at least one prior therapy. (Read: J&J (JNJ) Seeks EU Approval for Darzalex's Expanded Use)

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 0.4%.

Next Week’s Outlook

Familiar fears about oil have returned to trouble markets this week. Meanwhile, other factors, such as overpricing issues surrounding Mylan, have also dampened investor sentiment. Investors have also been wary of taking big calls ahead of the Fed Chair’s much awaited speech on Friday.

This is why it is important to focus on crucial economic reports scheduled for release over the next few days. This includes data on personal consumption, housing, consumer confidence and GDP. If most of these reports are positive in nature, stocks could return to their winning ways next week.

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