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Dow 30 Stock Roundup: Walmart Disappoints, Coca-Cola Impresses

Swarup Gupta
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AAR (AIR) Beats Q1 Earnings and Revenue Estimates

AAR (AIR) delivered earnings and revenue surprises of 3.85% and 2.55%, respectively, for the quarter ended August 2018. Do the numbers hold clues to what lies ahead for the stock?

The Dow experienced a volatile holiday shortened week, suffering losses during two trading sessions. Investors continued to remain concerned about rising inflation and surging bond yields. Disappointing results from a key component also weighed on the index. At the same time, encouraging jobs data helped the index notch up gains.

Last Week’s Performance

The Dow increased about 0.1% to post its sixth straight session of gains. However, gains were curbed after Special Counsel Robert Mueller indicted a group of Russian nationals and a few entities from the country regarding their involvement in the U.S. Presidential Elections of 2016. Meanwhile, housing starts surged to its highest levels since the financial crisis of 2008. Also, building permits rose to a 66-month high.

The index gained 4.3% over last week, marking its biggest weekly gain since November 2016. President Trump signed into law a bipartisan budget deal that will provide a massive spending boost to the Pentagon and U.S. infrastructure. This in turn had a positive impact on key indexes.

Markets managed to rebound after declining initially following a better-than-expected consumer prices report, a key inflation metric. Strong earnings season and steady economy led all the three key indexes to shrug off their yearly declines to close in positive territory.

The Dow This Week

Markets remained closed on Monday due to the observance of President's Day. The index decreased 1% on Tuesday following a decline in the shares of Walmart Inc. WMT. Shares of Walmart declined 10.2% after posting fourth-quarter results.

Walmart snapped its nine-quarter long trend of posting positive earnings surprises. Also, rate of e-commerce sales growth declined sequentially in the quarter. This was Walmart’s biggest percentage decline in a single day since January 1988.

After hitting its highest levels since 2014 last week, the yield on benchmark 10-year U.S. Treasury note surged to 2.9% on Monday. Further, the short-term two-year yield lingered around a nine-year high. Such a spike in interest rates also weighed on equities and led to broad based losses for markets.

The index lost 0.7% or 167 points to finish in the red on Wednesday following the release of minutes from Fed’s latest policy meeting. Bond rates surged to a 4-year high following the release of the minutes and weighed heavily on equities. Earlier in the session, major benchmarks had rallied after the minutes expressed concerns about the lack of broad-based wage gains.

At the end of the Federal Open Market Committee (FOMC) meeting, Fed officials stated that most members had revised their economic growth projections upward from the last meeting in December. Moreover, the minutes also stated that gradually increasing the interest rates would help in sustaining economic growth.

The index gained 0.7% on Thursday following encouraging jobs data which helped to detract attention from ongoing concerns surrounding rising inflation and the spike in bond yields. Initial claims for the week ended Feb 17 declined by 7,000 to 222,000, the second lowest level recorded since the end of the Great Recession.

The metric also came in well below the estimated level of 230,000. Ultimately, however, stocks slipped from their session highs after healthcare and financials entered the negative zone during the afternoon session. 

Components Moving the Index

Walmart’s fourth-quarter fiscal 2018 adjusted earnings of $1.33 per share missed the Zacks Consensus Estimate of $1.36. Nonetheless, adjusted earnings grew 2.3% from $1.30 reported in the year-ago period. Total revenues advanced 4.1% to $136.3 billion and also surpassed the Zacks Consensus Estimate of nearly $135 billion.

The segment recorded net sales growth of 3.4% to $86.6 billion in the quarter. U.S. comparable-store sales (comps), excluding fuel, jumped 2.6%, compared with 1.8% growth in the prior-year quarter.

Zacks Rank #2 (Buy) Walmart’s earnings for fiscal 2018 came in at $4.42 per share, up 2.3% year over year. However, this came below the consensus mark of $4.44. Net revenues for fiscal 2018 advanced 3% to $500.3 billion, cruising ahead of the consensus estimate of $498.1 billion.

Notably, U.S. comps for fiscal 2018 climbed 2.1%, whereas Walmart U.S. e-commerce sales soared 44%. For fiscal 2019, the company expects consolidated net sales (on a constant-currency basis) to increase in a range of 1.5- 2%. Walmart U.S. e-commerce sales is projected to jump nearly 40%. (Read: Walmart's Q4 Earnings Miss Hurts Stock, Comps Up Again)

Chevron Corporation CVX has recently recommenced operations in the politically disturbed Kurdistan region of Iraq, per Reuters. The company restarted operations at the Sarta 3 block in Kurdistan. Chevron has a Zacks Rank #3 (Hold).

The company had to call off operations in the region in October 2017 due to increasing dispute. In January 2018, the company revealed its plan to restart operations in the field and took necessary steps to remobilize staff and equipment in the region to recommence operations, with the dispute abating of late.  

The $213 billion market cap company started its operations in the Kurdistan region in 2012. However, it was blacklisted by the Iraqi government in July 2012 after the company signed contracts with the Kurdistan Regional Government to acquire two exploration blocks in the region. (Read: Chevron's Kurdistan Operations in Iraq Back Online)

ExxonMobil Corporation XOM and Total SA TOT have proposed major expansion plans in the Papua New Guinea (PNG) liquefied natural gas (LNG) plant, per their partner Oil Search Ltd. ExxonMobil has a Zacks Rank #3.

Per the analysts, the expansion plan is aimed to increase gas exports from the PNG LNG plant by two fold to about 16 million tons at a cost of about $13 billion.

The plan will include the addition of three LNG units, or trains. Of this, two are backed by gas from the Elk-Antelope fields, managed by Total. One unit will be supported by existing fields and the new P'nyang field, managed by ExxonMobil.

Subject to approval by the PNG government, the partners intend to commence engineering and design work in the second half of this year.

The preliminary cost of building the PNG LNG plant was pegged at $19.5 billion, while the expansion cost is projected in the range of $12-$14 billion for the additional capacity of 8 million tons per annum (mtpa), or $1,600 per ton. (Read: ExxonMobil, Total to Expand Capacity at PNG LNG Plant)

The Travelers Companies, Inc. TRV recently unveiled Quantum Home 2.0, which will help the company offer its clients a much more efficient and simplified way of communication. The product introduced of late will enable the property and casualty (P&C) insurer to improve services and also bring in new business.

The new offering is basically an improved homeowners insurance product with customized pricing and more flexible coverage options. Interestingly, the product provides the aforementioned services through simpler policy documents that will allow the company’s clients in better understanding of their insurance.

Additionally, the P&C insurer’s new product will help agents seamlessly quote and bind coverage. The product will boast improved features like new discounts for clients, decreasing deductible and loss forgiveness options, acknowledging customers’ loyalty. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Merck & Co., Inc. MRK has proposed to buy Viralytics Limited, an Australian pharmaceutical company that develops oncolytic immunotherapies for a range of cancers, for $394 million (502 million Australian dollars).

The deal makes strategic sense and strengthens Zacks Rank #3 Merck’s presence in the fast growing immuno-oncology market. With the deal, Merck will gain Viralytics’s lead pipeline candidate Cavatak, an oncolytic virus, which engages the innate immune system to attack and kill cancer cells.

Cavatak is being evaluated in several phase I/II cancer studies including a combination study with Merck’s PD-1 inhibitor, Keytruda. The Cavatak/Keytruda combination is being studied in melanoma, prostate, lung and bladder cancers, per a deal signed by the companies in November 2015. (Read: Merck to Buy Australian Firm to Boost Immunotherapy Pipeline)

The Goldman Sachs Group, Inc. GS  chairman and chief executive officer (CEO) — Lloyd Blankfein — has received a near 9% hike on his total compensation package. His annual salary has been raised to $24 million in 2017 from $22 million in 2016, according to a Securities and Exchange Commission (SEC) filing last week.

The hike, as believed, is well deserved keeping in mind Blankfein’s contribution to Zacks Rank #3 Goldman, when he took over the reins of the company in 2006. He has been instrumental in boosting pre-tax earnings by 8% to $11.1 billion in 2017.

Moreover, the company reported revenues of $32.1 billion, which improved 5% year over year, despite challenging market-making business environment. (Read: Goldman's CEO Blankfein's Pay Raised by 9% in 2017)

The Coca-Cola Company’s KO fourth-quarter 2017 comparable earnings of the company were 39 cents per share, surpassing the Zacks Consensus Estimate of 38 cents. Earnings also improved from the year-ago profit level of 37 cents, helped by ongoing productivity efforts. Coca-Cola has a Zacks Rank #3.

Revenues of $7.51 billion in the quarter surpassed the Zacks Consensus Estimate of $7.36 billion. However, net revenues declined 20% year over year due to the negative impact of structural items, marking the 11th consecutive quarterly decline.

Full-year comparable earnings came in at $1.91, same as the year-ago adjusted profit level. Net revenues were $35.41 billion, down 15% from $41.86 billion in 2016. Organically, revenues grew 3% for the full year.

For 2018, organic revenues are expected to rise 4%. The company expects adjusted EPS to grow 8-10% from the prior year’s comparable EPS of $1.91. (Read: Coca-Cola Shares Rally on Q4 Earnings & Revenue Beat)

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 0.3%.

Next Week’s Outlook

Investors are continuing to contend with ongoing concerns about rising inflation accompanied by a spike in bond yields. While the current impact of these factors is likely overstated, they will possibly continue to weigh on stocks in the weeks ahead. Given such a backdrop, investors will look toward crucial economic reports on GDP and durable orders for a much needed boost in the week ahead.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?

Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold.  Be among the very first to see them >>        


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Merck & Company, Inc. (MRK) : Free Stock Analysis Report
 
Coca-Cola Company (The) (KO) : Free Stock Analysis Report
 
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report
 
Chevron Corporation (CVX) : Free Stock Analysis Report
 
TOTAL S.A. (TOT) : 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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