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Dow 30 Stock Roundup: GE Cuts Dividend, Wal-Mart, Home Depot Beat

Swarup Gupta
Zacks Industry Outlook Highlights: Norfolk Southern, CSX, Kansas City Southern, Genesee & Wyoming and Union Pacific

The Dow traversed a tense week, suffering losses on two consecutive days after a key component cut its dividend significantly. Adding to the index’s woes were lingering concerns over the Trump administration’s ability to push through its much vaunted tax cuts. Ultimately, the Dow rebounded on the penultimate trading day of the week, buoyed once again by encouraging earnings numbers.

Last Week’s Performance

The Dow lost 39.73 points to end in the red last Friday. Market watchers speculated about the likely outcome of a delay in tax reforms, proposed last Thursday by the Senate Finance Committee. Shares of Intel Corporation INTC and Merck & Co., Inc. MRK declined 1.6% and 1.3%, respectively, and weighed heavily on the Dow. However, shares of The Walt Disney Company DIS advanced 2.1% and pared some of the losses for the blue-chip index.

The index declined 0.5% over last week, snapping its eight-week winning streak. The Senate Finance Committee released a tax plan which aims to reduce corporate tax rate to 20% but not before 2019, in contrast to the 2018 deadline proposed by the House Republicans. Although investors turned jittery following concerns that tax cuts may be delayed, markets curtailed part of the declines after the House Ways and Committee passed a Bill to reframe tax reforms.

Meanwhile, Apple Inc.’s AAPL market value jumped over $900 billion for the first time ever. Finally, benchmarks touched new highs last Monday following news of a possible merger between Broadcom and Qualcomm, marking the 26th trading day when an all-time high was achieved by all the three key U.S. indexes in 2017. This is the highest number of record highs achieved in a single year.

The Dow This Week

The index gained a little less than 0.1% on Monday. While tax woes continued to worry investors, gains were capped further after shares of General Electric Company GE plummeted to a five-year low after releasing weak EPS guidance for 2018. However, gains for The Boeing Company BA and Mattel, Inc. MAT boosted the markets.

Meanwhile, investors closely followed Trump’s visit to Asia. Speaking in Manila Trump commented that he would make an important announcement regarding trade on Wednesday in Washington.

The index shed 30.23 points on Tuesday to end in negative territory. Shares of General Electric declined for the second straight day, by 5.9%, to hit its lowest levels since 2011.

Moreover, oil prices declined after the International Energy Agency slashed its global crude-demand forecasts. This factor also weighed on the broader markets. Further, lingering tax-reform woes also dampened investor sentiment. Meanwhile, Elizabeth Warren commented that the Republican tax plan would eventually lead to an economic slowdown.

The index declined 0.6% on Wednesday after energy shares tanked following a decline in oil prices. This also marked the Dow’s worst one-day drop since Sep 5.

Additionally, worries centered on a possible delay in tax reforms also led the markets lower. Meanwhile, the Senate Finance Committee announced major amendments to its version of the tax bill. The proposal abolishes the individual mandate of Obamacare and increases the child tax credit.

The Dow rebounded from two days of losses on Thursday, gaining more than 187 points or 0.8%. Strong earnings performances from Wal-Mart Stores, Inc. WMT and Cisco Systems Inc. CSCO helped propel the index higher. Shares of Wal-Mart and Cisco gained 10.9% and 5.2%, respectively. Additionally, the House passed the Republican-led tax legislation, boosting investor sentiment further.

Components Moving the Index

General Electric’s shares were down over 4.5% in mid-morning trading on Nov 13 after the company announced that it had slashed its dividend in half, as well as other strategic business decisions. GE has a Zacks Rank #5 (Strong Sell).

The dividend cut marks only GE’s second since the Great Depression, and the company said shareholders’ payout will now be 12 cents a share, down from 24 cents a share; the cut will become effective in December. GE’s only other dividend cut was back during the Great Recession in 2009.

GE also unveiled annual profit projections that were well below Wall Street expectations. The company said that 2018 will be a “reset” year, and anticipates profit in the range of $1 and $1.07 per share; analysts were expected $1.15 per share. Additionally, GE is expecting weak free cash flow of roughly $7 billion, about half the company’s normal level. (Read: General Electric Shares are Falling Today: Here's Why)

The Home Depot Inc. HD posted fiscal third-quarter earnings of $1.84 per share, which escalated 15% from $1.60 recorded in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $1.81.

Net sales grew 8.1% to $25,026 million from $23,154 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $24,523 million. The company's overall comparable-store sales (comps) increased 7.9%, while comps in the United States grew 7.7%.

Home Depot now expects now expects sales growth of nearly 6.3%, alongside a 6.5% increase in comps. Earlier, the company projected net sales growth of 5.3% and comps increase of 5.5%. Moreover, management now anticipates earnings per share to be up nearly 14% to $7.36 in fiscal 2017 compared with the previous guidance of 13% growth to $7.29. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cisco reported first-quarter fiscal 2018 non-GAAP earnings of 61 cents per share beating the Zacks Consensus Estimate by a penny. However, the figure remained unchanged on a year-over-year basis. Cisco has a Zacks Rank #3 (Hold).

Revenues declined 1.7% year over year to $12.14 billion and were almost in line with the Zacks Consensus Estimate. Acquisitions contributed 60 basis points (bps) to revenue growth in the quarter. Security and Applications revenues increased in the quarter.

For second-quarter fiscal 2018, revenues are expected to rise 1-3% on a year-over-year basis. Non-GAAP earnings are anticipated between 58 and 60 cents per share. The Zacks Consensus Estimate for earnings is pegged at 58 cents, while that for revenues is at $11.73 billion. (Read: Cisco Beats Q1 Earnings Estimates, Outlook Positive)

Wal-Mart posted third-quarter fiscal 2018 adjusted earnings of $1.00 per share which exceeded the Zacks Consensus Estimate of 97 cents and grew 2% from 98 cents reported in the year-ago period. Earnings also exceeded the higher end of the guided range of 90 - 98 cents per share.

Total revenues came in at $123.2 billion (including membership and other income) that advanced 4.2% year over year and surpassed the Zacks Consensus Estimate of $121.1 billion. The upside was driven by strength at all three businesses.

For the fourth-quarter fiscal 2018, Zacks Rank #3 Wal-Mart expects both U.S. comps (excluding fuel) and Sam’s Club comps (excluding fuel) to increase in a range of 1.5-2.0% for the 13-week period ending Jan 26, 2018.

The company raised its bottom-line view for fiscal 2018 and now envisions adjusted earnings in the range of $4.38-$4.46 per share, as compared with the prior expectation of $4.30-$4.40. GAAP earnings are expected to range from $3.84-$3.92 per share. (Read: Walmart Stock Gains on Solid Q3 Earnings & Raised View)

Boeing recently sealed a deal for delivering 40 787-10 Dreamliners to Emirates — the largest airline in the Middle East.  Notably, the aircraft giant received the order on the very first day of the Dubai Airshow.

Deliveries of these twin aisle jets are scheduled to commence from 2022, while the 40th jet of the lot is expected to be delivered by 2030. The purchase order, in addition to the 40 jets, comes with equipments related to the 787-10 fleet, with a total value of $15.1 billion as per the current list price. (Read: Boeing to Deliver 787-10 Jets to Emirates for $15.1B)

In a separate development, Boeing has inked a deal with flydubai for 225 737 MAX airplanes. Valued at $27 billion at current list prices, the order was awarded during the 2017 Dubai Air Show. It marks the largest-ever single-aisle jet order from a Middle East carrier. (Read: Boeing & flydubai Ink $27B Deal for 225 737 MAX Airplanes)

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 lost 0.4%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

-1.2%

+15.9%

GS

-2.1%

+6.1%

IBM

-1.6%

-3.0%

HD

+1.9%

+5.8%

BA

+0.7%

+44.3%

UNH

-0.8%

+25.6%

MCD

-0.3%

+14.1%

TRV

-1.9%

+9.1%

JNJ

-0.9%

+8.7%

AAPL

-0.8%

+10.1%

Next Week’s Outlook

Following the developments of Thursday night, markets are finally witnessing some definite progress on the tax cuts front. GE also seems to have recovered from its recent debacle though the stock may remain under pressure for some time. However, earnings have continued to be strong overall and for key components of the index. Going forward, there is little to prevent stocks from notching up further gains in the days ahead.

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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
 
Walt Disney Company (The) (DIS) : Free Stock Analysis Report
 
Merck & Company, Inc. (MRK) : Free Stock Analysis Report
 
Boeing Company (The) (BA) : Free Stock Analysis Report
 
Home Depot, Inc. (The) (HD) : Free Stock Analysis Report
 
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