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Dow 30 Stock Roundup: UnitedHealth to Buy DaVita Unit for $4.9B, Chevron to Cut CapEx in 2018

Swarup Gupta

The Dow endured a volatile week even as Republicans tasted success on the tax legislation front. This development boosted bank stocks that eventually helped the Dow to touch new highs. Tech stocks had a good week, notching up gains over three successive trading sessions. Meanwhile, oil stocks remained volatile even as a spike in gasoline inventories led to losses for the sector on Wednesday.

Last Week’s Performance

The Dow declined by 0.2% last Friday after news related to the former U.S. national security adviser Michael Flynn raised market uncertainty. Flynn pleaded guilty to lying to the FBI regarding his interaction with the Russians and promised full cooperation to the investigating team.

However, some of Friday’s losses were curbed following news that the U.S. Senate Republicans had made legislative progress on the tax cut Bill. For the week, the Dow and the S&P 500 closed in positive territory, while the Nasdaq ended with losses.

The index gained 2.9% over last week, posting its best weekly increase since December 2016. During the week, Dow breached a fresh all-time high to surge past the psychological 24,000 milestone on rising optimism about the prospects of tax reforms after Senator McCain promised his support for the tax cut Bill.

Further, Jerome Powell’s comments that he would follow Yellen’s path in terms of monetary policies also boosted investor sentiment. Also, key economic data like GDP registered the highest growth rate since 2014, while consumer confidence hit a 17-year high. However, Flynn-related news raised market uncertainty on Friday and curbed some of the week’s gains.

The Dow This Week

The index gained 0.2% on Monday. U.S. Senate Republicans finally approved the tax cut Bill over the last weekend which boosted bank stocks that eventually helped the Dow to touch new highs. Additionally, strong rate hike chances post Fed’s Dec 12-13 meeting had a positive impact on the broader financial sector.

The index decreased 0.5% on Tuesday after investors speculated over the possible effects of retaining the alternate minimum tax provision in the final draft of the tax Bill. Meanwhile, the ISM Service Index for November declined from the 12-year high it had hit a month earlier.

Shares of The Walt Disney Company DIS declined 2.7% following reports from CNBC's David Faber that the company was in talks to buy some key assets of 21st Century Fox FOXA. This development was the biggest drag on the Dow.

The index lost 0.2% on Wednesday after energy stocks declined following a sudden plunge in oil prices. Meanwhile, the technology sector posted its second straight day of gains. According to the EIA, U.S. commercial crude oil inventories slumped 5.6 million barrels to 448.1 million for the week ended Dec 1.

However, the EIA reported that gasoline inventories jumped 6.8 million barrels, in contrast to analysts’ forecasts of a rise of only 1.145 million barrels. This led to a decline in oil prices. Both the two key oil behemoths, Chevron Corporation CVX and Exxon Mobil Corporation XOM decreased 0.7%.

The index rebounded on Thursday, gaining 0.3%, after tech stocks notched up gains for the third consecutive day. Further, investors maintained a close watch on any developments related to the Republican Tax Bill. Also, markets waited for Friday’s jobs report to gauge the strength of the labor market as a Fed rate hike seems more or less certain.

Components Moving the Index

Apple Inc. AAPL has won the long-pending case against Chinese manufacturer, Xiaomi over the registration of “Mi Pad” as an European Union (EU) trademark, per Reuters. The tech giant had filed a complaint with the European Union Intellectual Property Office (EUIPO) in 2016 over Xiaomi’s application of Mi Pad as an European trademark in 2014. Apple stated that the name is similar to that of its iPad trademark.

Following EUIPO’s support to Zacks Rank #3 (Hold) Apple, Xiaomi appealed to the General Court, the second highest court of the European Union. The plea was rejected this Tuesday saying that the similarity of the signs might lead to confusion among users.

Per the ruling, “additional letter ‘m’ at the beginning of "Mi Pad", is not sufficient to offset the high degree of visual and phonetic similarity between the two signs." However, Xiaomi can still appeal at EU's highest court, European Court of Justice, against the ruling. (Read: Apple Wins Against Rival Xiaomi in EU Trademark Case)

UnitedHealth Group Inc.’s UNH Optum unit has announced the buyout of DaVita Medical Group, a unit of DaVita Inc. DVA, for $4.9 billion in cash. This acquisition will be made by OptumCare — a sub-segment of Optum — the company’s health services segment. OptumCare provides primary and urgent care delivery services business. UnitedHealth has a Zacks Rank #3.

This is the company’s third deal this year to expand its medical services business. It is expected to close in 2018. In March, the unit bought Surgical Care Affiliates for about $2.3 billion. Last month, Optum also bought the health unit of Advisory Board Co., which advises hospital systems. (Read: UnitedHealth to Buy DaVita Medical, Expands Optum Business)

Chevron recently announced its capital and exploratory spending program for 2018. Budget for capital projects is reserved at $18.3 billion, lower than this year’s estimate of $19.8 billion. Per the company, capital spending for the next three years will be in the range of $17-$22 billion per annum. Of the total budget for 2018, $5.5 billion is meant for affiliated companies' expenses.

The overall 2018 budget is 4% lower than the one provided for 2017. It has been declining for the last four years. Per the company, it is focusing on growth projects, which will add to the company's cash flow in the next two years, including the Permian Basin assets. Completion of several projects and enhanced efficiencies in the company’s operations were also responsible for the lowered budget for 2018.  

The company however expects production to grow in the coming year driven by its Permian Basin play. To sustain the current producing assets, the company will bear costs of around $8.7 billion, of which $3.3 billion will be utilized for the Permian Basin. Per Zacks Rank #3 Chevron, $1.0 billion will be used for other shale and tight rock investments. The company's assets in the Tengiz field of Kazakhstan were allotted $3.7 billion while the downstream projects were allotted $2.2 billion. (Read: Chevron Unveils $18.3B Capital Expenditure Budget for 2018)

Wal-Mart Stores, Inc. WMT is set to rechristen itself in a bid to emerge as an omni-channel retailer officially. The big-box retailer is doing away with the “hyphen” and “stores” from its name and will be known as “Walmart Inc." effective Feb 1, 2018. Wal-Mart has a Zacks Rank #2 (Strong Buy).

Management stated that the company’s current name is used only in few legal places as it is more popular as just “Walmart," given its seamless operations across stores, online as well as its app. Thus, this name change will bring uniformity and reveal Walmart’s unified and omni-channel existence universally. (Read: Wal-Mart Stores to Walmart: What's Behind the Name Change?)

ExxonMobil plans to merge its two separate business units into ExxonMobil Fuels & Lubricants Company. The merger is expected in first-quarter 2018. The merged company will be headed by the current president of ExxonMobil Fuels, Lubricants & Specialties Marketing Company — Bryan Milton — effective Jan 1, 2018. Milton has been elected as the president by ExxonMobil’s board of directors.

The merger of two operations — ExxonMobil Refining and Supply Company and ExxonMobil Fuels, Lubricants & Specialties Marketing Company — will enable the company to take better decisions and boost performance in the market. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Disney is preparing to lay off nearly 150 jobs at ESPN, per media reports. This will be the second such move after the company made significant cuts in April, which affected mostly on-air commentators.

Zacks Rank #3 Disney’s ABC Television Group and Disney Channel had witnessed similar retrenchment previously. Both have been witnessing rating decline and stiff competition of late. (Read: Disney to Reduce Workforce at ESPN, Subscriber Woes Remain)

General Electric Company GE is likely to lay off about 4,500 employees in Europe as part of its corporate objective to lower operating costs and improve profitability, according to a Reuters report. Although a company spokesperson declined to comment on such news, an unnamed union source confirmed the veracity of the news. GE has a Zacks Rank #5 (Strong Sell).

The job cuts are mostly centered on the power and grid businesses that GE bought from Alstom in 2015 and will affect employees in Switzerland, Germany and Britain. Billed as one of the largest acquisitions of GE at about $10 billion, the transaction increased the employee count of the company by approximately 65,000 with the addition of several field offices and manufacturing sites across the world. (Read: GE to Lay Off 4,500 Employees in Europe for Reducing Costs)

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 0.9%.

Next Week’s Outlook

Investors are likely to breathe easier with the Republicans achieving significant success on the tax legislation front. Meanwhile, tech stocks have rebounded strongly after remaining depressed in the recent past over valuation concerns. Investors have also largely priced in the upcoming Fed rate hike.

The only negative for markets at this point seems to be the volatility in oil prices, which makes its presence felt on the odd trading day. If most of the economic reports slated for release next week, including crucial data on retail sales, remains encouraging, stocks are likely to notch up steady gains in the days ahead.

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Walt Disney Company (The) (DIS) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
General Electric Company (GE) : Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
DaVita HealthCare Partners Inc. (DVA) : Free Stock Analysis Report
Twenty-First Century Fox, Inc. (FOXA) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
Wal-Mart Stores, Inc. (WMT) : Free Stock Analysis Report
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