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Dow 30 Stock Roundup: AAPL, PFE, MRK, MCD Earnings Impress

Swarup Gupta

The index traversed a mixed week, buoyed by encouraging earnings numbers and dragged lower by comments from the Fed Chair. On the whole, first-quarter results continued to be much better than expected. There were a few major disappointments, but earnings largely buoyed investor sentiment.

However, the Fed Chair’s comments following the central bank’s latest two-day policy meeting indicated that there was little chance of a near-term rate cut. This weighed on traders’ spirits, leading to losses for equity markets.

Last Week’s Performance

The index gained 0.3% on Friday after first-quarter U.S. GDP expanded at a rate higher than the consensus estimate for the period. Such positive developments also negated the impact of mixed corporate earnings. The Dow finished the day just 1.5% below its all-time high.

U.S. GDP increased at 3.2% in the first quarter of 2019, surpassing the consensus estimate of 2.1%. This is the fastest pace recorded in four years. The figure is also higher than the 2.2% growth recorded in the last quarter of 2018. This is also the first time since 2018 that first-quarter GDP has surpassed the 3% level.

The index lost 0.1% over last week. Major indexes wobbled throughout the week as first-quarter earnings results remained mixed. Moreover, crude oil prices moved up further after reaching a 6-month high on Apr 22.

Further, on Apr 22, the South China Morning Post reported that the government of China has decided to end economic stimulus and will focus on structural reforms in order to steady the economy. The 25-member Chinese politburo expressed confidence in the country’s first-quarter performance.

The Dow This Week

The index increased less than 0.1% on Monday as first-quarter earnings continued and investors awaited the Fed’s decision on the future of rate hikes post the culmination of its two-day meeting on Wednesday. Gains for the 30-stock index were propelled by a 1.9% rally in the shares of Goldman Sachs GS.

The index increased 0.2% on Tuesday even as Alphabet GOOGL posted its worst day in more than six years. Alphabet’s first-quarter earnings decreased 6.8% sequentially and 19.8% year over year.

Moreover, net revenues missed the Zacks Consensus Estimate of $29.99 billion. However, the Dow finished in the green propelled by a 0.2% rise in shares of McDonald's Corporation MCD after the restaurant chain operator reported better-than-expected first-quarter earnings.

The index declined 0.6% on Wednesday after the Federal Reserve decided to leave the interest rates unchanged at the culmination of its two-day meeting. Further, Fed’s Chief Jerome Powell made it clear that there was no reason to expect a rate cut by the Fed in the near term.

Losses for the 30-stock index were rather broad-based. Moreover, the Dow posted its worst day since Apr 9. On the economic data front, the ISM manufacturing index fell to 52.8% in April, its lowest reading since October 2016.

The index lost 0.5% on Thursday after the 10-year yield surged to an intraday record level. This was a direct outcome of comments made by the Fed Chair on Wednesday following the central bank’s two-day policy meeting.

Powell described currently sluggish inflationary conditions as “transitory.” His comments dashed traders’ hopes for a near-term rate cut.

Components Moving the Index

Apple AAPL reported second-quarter fiscal 2019 earnings of $2.46 per share that beat the Zacks Consensus Estimate by 9 cents but declined 9.9% year over year.

Net sales decreased 5.1% year over year to $58.02 billion, which surpassed the Zacks Consensus Estimate of $57.55 billion. The figure was within management’s guided range of $55-$59 billion.

iPhone sales declined 17.3% from the year-ago quarter to $31.05 billion and accounted for 53.5% of sales. The company generated double-digit revenue growth across the App Store, Apple Music, cloud services, AppleCare, Apple Pay and App Store search ad business.

iPad sales of $4.87 billion increased 21.6% year over year and accounted for 8.4% of sales. Mac sales of $5.51 billion decreased 4.6% from the year-ago quarter and accounted for 9.5% of sales.

For third-quarter fiscal 2019, revenues are projected between $52.5 billion and $54.5 billion. Zacks Rank #3 (Hold) Apple expects 300 bps of foreign exchange headwinds to negatively impact top-line growth. The Zacks Consensus Estimate for third-quarter sales is pegged at $52.37 billion. (Read: Apple Q2 Earnings Beat Estimates, Revenues Down Y/Y)

Pfizer, Inc. PFE reported first-quarter 2019 adjusted earnings per share of 85 cents, which beat the Zacks Consensus Estimate of 77 cents. Earnings rose 13% year over year driven by higher sales and reduced share count. Pfizer has a Zacks Rank #3.

The pharma heavyweight recorded revenues of $13.12 billion, which beat the Zacks Consensus Estimate of $12.80 billion. Revenues rose 2% from the year-ago quarter on a reported basis.

Currency fluctuation hurt sales by 4% in the quarter. On an operational basis, excluding the impact of currency, revenues rose 5% year over year driven by higher sales of some key brands in Pfizer’s Biopharmaceuticals group. (Read: Pfizer Beats on Q1 Earnings & Sales, Raises EPS View)

Merck & Co., Inc. MRK reported first-quarter 2019 adjusted earnings of $1.22 per share, which beat the Zacks Consensus Estimate of $1.05. Earnings rose 16% year over year (up 18% excluding the impact of currency).

Including acquisition- and divestiture-related costs, restructuring costs and certain other items, earnings per share were $1.12 against a loss of 27 cents in the year-ago quarter.

Revenues for the quarter rose 8% year over year to $10.8 billion, beating the Zacks Consensus Estimate of $10.32 billion. Currency movement negatively impacted revenues by 3%. Excluding currency impact, sales rose 11% year over year. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

McDonald's reported impressive first-quarter 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings came in at $1.78 per share, which surpassed the consensus mark of $1.73. McDonald's has a Zacks Rank #3.

In the first quarter, revenues of $4,955.6 million outpaced the Zacks Consensus Estimate of $4,911 million but decreased 4% year over year. This downturn reflects the impact of the company’s strategic refranchising initiatives. However, on a constant-currency basis, the metric increased 2% on a year-over-year basis. (Read: McDonald's Q1 Earnings & Revenues Surpass Estimates)

Chevron Corporation CVX reported earnings per share of $1.39, ahead of the Zacks Consensus Estimate of $1.26. Quarterly revenues of $35.2 billion missed the Zacks Consensus Estimate of $37.9 billion and were down 6.8% year over year.

Zacks Rank #2 Chevron’s total production of crude oil and natural gas increased 6.5% compared with last year’s corresponding period to 3,038 thousand oil-equivalent barrels per day (MBOE/d) – the second successive quarter where volumes exceeded 3 million barrels per day.

Chevron’s downstream segment achieved earnings of $252 million, 65.4% lower than the profit of $728 million last year. The decline primarily underlined a fall in refined products sales margins. (Read: Chevron Q1 Earnings Beat, Downstream Woes Continue)

Exxon Mobil Corporation XOM reported weak first-quarter 2019 results due to significant lower contributions from its downstream and chemical businesses. Exxon Mobil has a Zacks Rank #3.

This largest publicly traded integrated energy company’s earnings per share of 55 cents lagged the Zacks Consensus Estimate of 75 cents. Moreover, the bottom line declined significantly from the year-earlier figure of $1.09.

Total revenues of $63,625 million fell short of both the Zacks Consensus Estimate of $67,927 million and the year-ago sales of $68,211 million.

Quarterly upstream earnings came in at almost $3 billion, lower than $3.5 billion in the year-ago quarter. Affected natural gas prices on account of warmer weather along with less production of the commodity hurt the segment.

The downstream segment incurred a loss of $256 million against the year-ago quarterly profit of $940 million due to significant scheduled maintenance activities and the contraction in fuel margin. (Read: ExxonMobil Earnings & Revenues Miss Estimates in Q1)

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 past six months. Over the last five trading days, the Dow has declined 0.5%.

Next Week’s Outlook

First-quarter earnings numbers have surprised investors, coming in much stronger than expected. A few major names like Alphabet have reported disappointing results but traders seem to be pleased with earnings overall. It’s a different story when it comes to the Fed, however.

The central bank has virtually ended speculation that a rate cut will take place this year. Under such circumstances, investors would do best to focus on economic fundamentals. GDP numbers have come in strong and if payrolls numbers are strong on May 3, markets could soon notch up steady gains.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

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Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
Pfizer Inc. (PFE) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
McDonald's Corporation (MCD) : Free Stock Analysis Report
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