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Dow 30 Stock Roundup: WBA Q2 Earnings Disappoint, PFE Lung Cancer Drug Gets EU Approval

Swarup Gupta

The index notched up another week of strong gains riding on optimism over the increasing likelihood of a near-term U.S.-China trade deal. Multiple reports claimed that the two countries were in the final stages of negotiations with only a few differences remaining.

Encouraging manufacturing data also emerged from the United States and China. This went a long way toward dispelling fears of an imminent global economic slowdown.

Last Week’s Performance

The index increased 0.8% last Friday, the last trading day of the first quarter of 2019. Positive developments on the trade war front boosted investor sentiment and overshadowed concerns related to a slowdown in the country’s economic growth in the last quarter of 2018.

Gains for the 30-stock index were propelled by a rally in shares of Boeing BA, UnitedHealth UNH and Caterpillar CAT, which gained 1.9%, 2.1% and 2.4%, respectively. The Dow gained 1.2% in the past week.

After a fabulous February, Wall Street’s rally continued in March as well with the Dow gaining 0.1% over last month. Several positive developments on the trade war front, Fed’s decision to keep interest rates unchanged and consistent performance by technology shares were the major catalysts for U.S. stocks in March.

The index surged 11.2% over the first quarter. Eurozone’s economic woes and fears related to Brexit weighed on investor sentiment. However, optimism around the trade war, Fed’s dovish monetary stance, the end of the government shutdown and stable oil prices were major catalysts behind the stock market rally.

Further, stunning fourth-quarter earnings and tech sector’s strong performance in the last three months also boosted stocks higher over this period.

Dow This Week

The index gained 1.3% on Monday after investor sentiment was boosted by healthy manufacturing data from the United States and China. Further, China also announced that it would continue to reduce additional tariffs on U.S. autos in order to aid trade negotiations. Meanwhile, Dow finished above the 26,000 level for the first time in more than a month.

The index lost 0.3% on Tuesday as investors digested weak earnings results and unimpressive economic data. Durable goods orders for the month of February declined more than expected. Additionally, uncertainty over Brexit continued to dampen investor sentiment.

Pharmacies and Drug Stores giant Walgreens Boots Alliance Inc. WBA reported disappointing earnings results for the second quarter of fiscal 2019. Consequently, shares of Walgreens Boots plunged 12.8%, marking its worst single-day drop since Aug 6, 2014.

The index advanced 0.2% on Wednesday as investors were buoyed by positive developments on the U.S.-China trade war front. Reports surfaced that a trade deal between the countries had almost been finalized with only a few sticking points remaining. Strong service sector data from China also boosted investor sentiment.

The index gained 166.50 points or 0.6% on Thursday as investors eagerly awaited the outcome of the current round of U.S.-China trade negotiations. According to multiple reports, talks between the two countries have entered their final stage.

Gains for the Dow were primarily propelled by a 2.9% increase in shares of Boeing. The aircraft maker notched up such gains after unveiling a fresh software patch for its troubled 737 Max aircraft. Shares of DowDuPont DWDP increased 1.2%.

Components Moving the Index

American Express Co. AXP and SAP Ariba have entered into a multi-phased partnership. The deal will provide new payment and financing options to buyers and suppliers on Ariba Network, thus enabling to better serve customers globally. With Ariba, American Express seeks to tap the B2B payments, which is a vast market with unmet needs. American Express has a Zacks Rank #3 (Hold).

The deal will boost the company’s Global Commercial Services (“GCS”) revenues which were up 5% and 9% in 2017 and 2018, respectively. The GCS segment provides a wide range of card and payment programs, expense management tools, consulting services, business financing and cross-border payments solutions to small businesses, mid-size companies and large corporations around the world. (Read: American Express Pairs with Ariba, Extends Delta Deal)

Apple Inc. AAPL has slashed prices of most of its flagship devices, including iPhones, iPads, Macs and AirPods by about 6% on its official Chinese online store.

The price cut is in response to a fall in value-added tax (VAT) in China that took effect on Apr 1. VAT for manufacturers like Rank #3 Apple was brought down from 16% to 13%, per Caixin.

Apple also announced refund eligibility for the price difference for anyone, who has purchased one of the products over the two weeks preceding the sale.

For instance, the price for entry-level iPhone XR, which originally cost 6499RMB, was slashed 4.6% to 6199RMB. Further, there was a 500RMB price cut each for iPhone XS and iPhone XS Max. (Read: Apple Reduces Flagship Products' Prices in China)

Merck & Co., Inc. MRK announced that its PD-L1 therapy, Keytruda, has gained conditional approval for use in combination with chemotherapies for first-line metastatic nonsquamous non-small cell lung cancer (NSCLC) in China. The drug received approval in combination with Eli Lilly’s LLY Alimta (pemetrexed) and platinum chemotherapy in adult lung cancer patients whose tumors have no EGFR or ALK positive mutations.

A confirmatory study on Chinese patients is required for continued approval in the aforementioned indication. The drug is approved for a similar indication in the United States and Europe. Keytruda is already approved for advanced melanoma in China. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Walgreens Boots reported adjusted earnings per share (EPS) of $1.64 for second-quarter fiscal 2019, down 5.4% year over year (down 4.3% at constant exchange rate or CER). The figure missed the Zacks Consensus Estimate of $1.70 by 3.5%.

On a reported basis, net earnings came in at $1.16 billion, reflecting a 14.1% decline from the prior-year quarter. Reported EPS came in at $1.24, down 8.3% on a year-over-year basis.

Zacks Rank #4 (Sell) Walgreens Boots recorded total sales of $34.53 billion in the fiscal second quarter, up 4.6% year over year and 6.7% at constant exchange rate or CER. The top line missed the Zacks Consensus Estimate of $34.87 billion.

Walgreens Boots lowered its fiscal 2019 adjusted EPS guidance from 7-12% growth at CER to roughly flat. The Zacks Consensus Estimate for the metric is pegged at $6.39.

The company had announced the introduction of a transformational cost management program in the last-reported quarter. Walgreens Boots has now revised the targeted annual cost savings to more than $1.5 billion from more than $1 billion by fiscal 2022. (Read: Walgreens Boots Q2 Earnings Lag Estimates, Margins Down)

Pfizer, Inc. PFE announced that the European Commission has granted marketing approval to its tyrosine kinase inhibitor, Vizimpro (dacomitinib) for the first-line treatment of metastatic non-small cell lung cancer (NSCLC) in patients with EGFR activating mutations. This new lung cancer medicine was approved in the United States last September. Pfizer has a Zacks Rank #4.

Vizimpro’s (45 mg) approval in EU was expected as, in February, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) had granted a positive opinion recommending approval of Vizimpro.

The drug holds immense sales potential as EGFR-mutated NSCLC is a disease that is associated with low overall survival rates. (Read: Pfizer's New Lung Cancer Drug Vizimpro Gets EU Approval)

Verizon Communications Inc. VZ recently launched 5G Ultra Wideband network in select locations of Chicago and Minneapolis, ahead of schedule. Notably, the move is in sync with the company’s strategy to increase the tally of cities under the 5G service coverage to more than 30 in 2019. Verizon has a Zacks Rank #3.

Simultaneously, the company is offering Motorola Solutions, Inc.’s MSI exclusive moto z3 powered by 5G moto mod, making it the first in the world to offer commercial 5G mobile service along with a 5G-enabled smartphone for customers. (Read: Verizon Rolls Out 5G Service in Chicago and Minneapolis)

Performance of the Top 10 Dow Companies

The table given below shows the price movement of the 10 largest components of the Dow, which is a price-weighted index, over the past five days and during the last six months. Over the past five trading days, the Dow has gained 1%.

Next Week’s Outlook

Stocks have largely been on a tear this week, riding on growing optimism over ongoing trade negotiations. It seems more than likely that a deal will indeed be struck in the immediate future. This will effectively rid investors of a headwind which has plagued them since last year.

Meanwhile, encouraging economic data from China clearly indicates that the stimulus measures implemented by its government are having their desired impact. Most economists are also brushing off talks of a near-term U.S. recession. It now seems more than likely that stocks will touch new highs in the days ahead.

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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Pfizer Inc. (PFE) : Free Stock Analysis Report
 
Eli Lilly and Company (LLY) : Free Stock Analysis Report
 
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
 
Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
 
Verizon Communications Inc. (VZ) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
American Express Company (AXP) : Free Stock Analysis Report
 
Caterpillar Inc. (CAT) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
Walgreens Boots Alliance, Inc. (WBA) : Free Stock Analysis Report
 
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