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Dow 30 Stock Roundup: Apple, Intel, Exxon Beat; Merck, Pfizer, Chevron Miss on Revenues

Swarup Gupta

The Dow suffered losses over the week as optimism over Trump’s election gave way to apprehension over his actions as President. Newly introduced immigration rules led to protests, criticism and legal challenges. Additionally, the tech sector expressed concerns over the impact these regulations would have on their businesses. Trump’s approach on trade and foreign policy also led to widespread heartburn and dampened investor sentiment.

Last Week’s Performance

The Dow lost a meager 0.04% last Friday after fourth quarter GDP fell short of estimates.  U.S economy slowed more than expected in the fourth quarter after plunge in shipments of soyabeans adversely affected exports. Annual growth failed to reach 3% for the 11th straight year, indicating the hurdles Trump administration faces to speed up expansion. Orders for long-lasting goods, meantime, dropped 0.4% in December for the second month in a row.

The index gained 1.3% over last week. Trump’s growth-focused actions led the benchmarks to close in positive territory. His moves to revive two major oil pipeline projects, signing executive orders to improve border security and control immigration raised speculation that he will proceed with tax cuts, financial deregulation and introduce expansionary infrastructure spending.

The Dow This Week

The index declined 0.6% on Monday as investors’ grappled over President Trump’s order to tighten immigration rules. An executive order by Trump banned immigration from seven Muslim-majority countries, including legal residents and visa holders. Such an executive order spawned legal challenges, congressional criticism and widespread protests. Trump had earlier fostered expectations that his administration will be business friendly and therefore good for stocks.

The Dow logged its worst daily loss since mid-October on Monday, while a popular measure of Wall Street fear climbed to its highest level in about three months.Consumer spending increased 0.5% in December, matching the consensus estimate, according to the Bureau of Economic Analysis.

The index declined 0.5% on Tuesday amid signs that momentum following President Donald Trump’s election victory in November was fading. His signing of an executive order to temporary restrict immigration saw weekend chaos and backlash, eventually affecting stocks. Industrial, technology and financials shares tanked outweighing gains among traditional safe sectors including health-care and utilities. Meantime, a gauge of consumer confidence retreated in January from its highest level in 15 years.

Despite such setbacks, major indexes ended the month higher in what were their first January gains since 2013. The Dow added 0.5% for the month of January. Projections for stronger economic growth and upbeat corporate earnings boosted US stocks for the first January rise in five years. Stocks rallied on hopes that the new administration’s policies including lowering of taxes and cutting regulations will bolster economic growth.

The materials sector has fueled the rally, advancing 5.1% so far this year, following a 14% gain in 2016. Technology shares that trailed behind the broader market last year have also recorded sharp gains this year. The sector has risen 3.6% in January, its best month since last July. Earnings in the final quarter of 2016 came on the heels of growth in the third quarter that snapped a 15-month decline in earnings.

The index gained 0.1% on Wednesday after Apple Inc. AAPL, the largest U.S. company by market cap, reported upbeat earnings. Meanwhile, the Fed ended its two-day policy meeting on Wednesday and revealed that measures of consumer and business sentiment have improved of late. But the Fed kept rates unchanged within a range of 0.5% to 0.75%.

More importantly for investors, the central bank didn’t give any sign that it would raise rates in its next meeting in March, putting the probability of such a move at only 18%, according to CME Group. The ISM manufacturing index climbed to 56% last month from 54.5% in December, marking the fifth straight gain and also its highest level since end 2014.

The index declined a meagre 0.03% on Thursday after President Donald Trump’s approach on trade and foreign policy dented investor sentiment. Investors grappled over Trump’s executive order to tighten immigration rules, while the White House warned Iran that the country could face new sanctions over a recent ballistic missile test. Trump also labelled a refugee swap agreement with staunch ally Australia as a “dumb deal” and reiterated concerns about trade ties with Mexico.

Components Moving the Index

Apple’s first quarter of fiscal 2017 earnings of $3.36 per share and revenues of $78.4 billion easily topped the respective Zacks Consensus Estimate of $3.22 and $76.9 billion. On a year-over-year basis, both metrics registered growth of 2.4% and 3.3%.

Total iPhone unit sales came in at about 78.3 million, up 5% year over year. Revenues from iPhone also grew 5% from the year-ago quarter to $54.4 billion (69.4% of total revenue).

Services, which include revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing and other services, surged 18% year over year (with extra one week in the quarter) to nearly $7.2 billion.

For the second quarter of fiscal 2017, Zacks Rank #3 (Hold) rated Apple forecasts revenues in a range of $51.5 billion to $53.5 billion. Gross margin is expected within 38% to 39%. (Read: Apple (AAPL) Q1 Earnings and Revenues Beat, Increase Y/Y)

Exxon Mobil Corp. XOM reported fourth-quarter 2016 earnings of 90 cents per share, which beat the Zacks Consensus Estimate of 72 cents. The bottom line also came in ahead of 67 cents per share in the year-ago quarter. The stock has a Zacks Rank #3.

Total revenue in the quarter increased to $61,016 million from $59,807 million in the year-ago quarter. The top line also surpassed the Zacks Consensus Estimate of $60,606 million. (Read: Exxon Mobil (XOM) Tops Q4 Earnings on Higher Realizations)

Merck & Co., Inc. MRK reported fourth-quarter 2016 earnings of 89 cents per share, which beat the Zacks Consensus Estimate of 88 cents by a penny. Revenues for the quarter dipped 1% year over year to $10.12 billion, missing the Zacks Consensus Estimate of $10.20 billion by 0.8%.

Full-year sales rose 1% to $39.8 billion, slightly missing the Zacks Consensus Estimate of $39.9 billion. Revenues were, however, within the guided range of $39.7–$40.2 billion.

Merck expects earnings for 2017 in the range of $3.72–$3.87 per share, including approximately 2% negative foreign exchange impact. Revenues are expected to be in the range of $38.6 billion to $40.1 billion, including negative currency impact of approximately 2%. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pfizer, Inc. PFE reported fourth-quarter adjusted earnings per share of 47 cents, missing the Zacks Consensus Estimate of 50 cents by 6%. On the other hand, revenues beat expectations. The pharma heavyweight posted revenues of $13.63 billion, higher than the Zacks Consensus Estimate of $13.55 billion.

Full-year sales rose 8% to $52.82 billion, falling short of the Zacks Consensus Estimate of $52.89 billion. Adjusted earnings for 2016 were $2.40 per share, missing the Zacks Consensus Estimate of $2.41.

Zacks Rank #3 rated Pfizer’s 2017 sales outlook fell short of expectations. Revenues are expected in the range of $52 billion to $54 billion.  Adjusted earnings per share are expected in the range of $2.50–$2.60. (Read: Pfizer (PFE) Q4 Earnings Lag, Sales Top; '17 Sales View Soft)

Intel Corp. INTC reported fourth-quarter 2016 non-GAAP earnings of 79 cents per share, which increased almost 4% from the year-ago quarter but declined 1.3% sequentially. Earnings per share (EPS) beat the Zacks Consensus Estimate by 4 cents.

The strong year-over-year earnings growth was driven by 9.8% increase in revenues, which totaled $16.37 billion and comfortably surpassed the Zacks Consensus Estimate of nearly $15.80 billion. Revenues increased 3.8% sequentially.

Zacks Rank #3 rated Intel’s guided first-quarter 2017 revenues of around $14.8 billion (+/-$500 million), almost flat sequentially. The non-GAAP gross margin is expected to be around 63% (+/-1%). For full-year 2017, management expects revenues to remain flat and gross margin of 63% (+/-2%). (Read: Intel (INTC) Beats on Q4 Earnings; '17 View Lacks Shine)

Chevron Corp. CVX reported fourth quarter earnings per share of 22 cents, sharply lower than the Zacks Consensus Estimate of 63 cents. However, the bottom line compared favorably with the year-ago loss of 31 cents amid the recovery in commodity prices and the success of its cost savings initiatives. The stock has a Zacks Rank #3.

Quarterly revenue of $31,497 million missed the Zacks Consensus Estimate of $32,605.8 million but increased 8% year over year. (Read: Chevron's (CVX) Stock Drops After Q4 Earnings, Sales Miss)

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 1.1%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

-1.9%

-2.4%

GS

-4.3%

+45.5%

IBM

-2.3%

+8.7%

HD

-1.4%

-0.1%

BA

-4.7%

+23.5%

UNH

-1.2%

+12.5%

MCD

+0.6%

+4.9%

TRV

-0.2%

+0.1%

JNJ

+1%

-8.3%

AAPL

+4.8%

+21.5%

Next Week’s Outlook

Stocks have struggled through the week, primarily hampered by Trump’s executive actions upon assuming office. His campaign promises had led to a great degree of optimism about a business friendly administration entering office. However, enthusiasm has given way to fear over an increase in volatility in the days ahead. However, the Fed has provided some relief by providing favorable signals about the economy. Further, it has refrained from raising rates at its latest meeting. These events should stand investors in good stead as they prepare for the events that could unfold in the week to come.  

Zacks' Top 10 Stocks for 2017

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Pfizer, Inc. (PFE): Free Stock Analysis Report
 
Merck & Company, Inc. (MRK): Free Stock Analysis Report
 
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