Dow 30 Stock Roundup: Home Depot Beats, Intel Raises Sales Guidance, Dividend

The Dow enjoyed a week of gains, declining marginally only on Wednesday. Indications of further monetary stimulus from the Eurozone and encouraging deal news helped the blue-chip index move up on Monday. The Dow gained again on Tuesday following a rally in healthcare stocks and easing global growth worries.

However, the blue-chip index slipped marginally on Wednesday as Fed minutes failed to provide any clear indications about a rate hike. The Dow rebounded on Thursday as upbeat economic reports and strong retail earnings results offset dismal foreign economic data. The Dow has gained nearly 0.6% during the first four trading days.

Last Week’s Performance

Stocks were little changed on Friday as Eurozone’s soft GDP data offset encouraging economic reports. Decline in healthcare stocks also eroded some of Friday’s gains. However, higher crude oil prices boosted energy shares. Eurozone’s GDP grew at a sluggish rate of 0.2% in the third quarter. Germany and France’s GDP grew at 0.1% and 0.3% respectively. Moreover, GDP growth in the third largest economy, Italy, was negative. Italy witnessed a contraction of 0.1% in the quarter.

Retail sales rose 0.3% in October, compared to 0.3% decline in September. Moreover, a preliminary report showed that the University of Michigan/Thomson Reuters consumer-sentiment index rose to 89.4 in November from 86.9 in October, beating the consensus estimate of 87.6. However, these reports failed to boost the Dow which declined 0.1%.

For the week, the Dow gained 0.4%. Benchmarks ended in the green on upbeat earnings results from industry heavyweights. Moreover, merger and acquisition news also boosted markets.

However, decline in oil prices eroded some of the week’s gains. Renewed tensions in Ukraine, soft data from Europe and China also dented investor confidence. Economic data released during the week had little impact on the benchmarks. Dismal initial claims number and discouraging budget deficit data also had negative impact on the benchmarks.

The Dow This Week

The Dow gained around 0.1% on Monday even as Japan unexpectedly slipped into a recession. Soft industrial production data also dented investor sentiment. However, Mario Draghi’s reassurance about monetary stimulus in the Eurozone boosted investor confidence. Moreover, encouraging deal news also helped benchmarks offset losses on Monday.

Japan’s GDP contracted 1.6% in the third quarter, compared to the consensus estimate of a 2.25% increase. The contraction follows a 7.3% decline in the second quarter. However, the European Central Bank (:ECB) President Mario Draghi provided assurances that ECB will opt for “additional unconventional instruments” if current monetary stimulus is unable to protect the economy from deflationary pressures.

A rally in healthcare stocks and easing global growth worries helped benchmarks finish in the green on Tuesday. Improved investor confidence data from Germany and positive news from Japan reduced worries about the global growth. Encouraging economic data also lifted investor sentiment.

The November survey from Germany’s ZEW Institute that measures sentiment of financial professionals like economists and investors came in better than expected. Moreover, markets rallied after Japan’s prime minister Shinzo Abe announced a delay in the second round of sales tax increase by 18 months. Meanwhile, the NAHB/Wells Fargo Housing Market index came in above 50 for the fifth consecutive month. The blue-chip index gained around 0.2% finishing on a record high.

The Dow lost a meager 0.01% on Wednesday to finish in the red as Fed minutes failed to provide any clear indications about a possible rate hike. Moreover, mixed housing data also weighed on investor sentiment. However, upbeat earning results helped retail stocks to post solid gains.

In the minutes, FOMC mentioned that some Federal Reserve officials had doubts about whether the 2% inflation rate target could be achieved. Though the FOMC reaffirmed that it would maintain interest rate near zero level for “a considerable time,” they also said it may hike the same earlier if the economy strengthens.

Housing starts declined by 2.8% to 1,009,000 from September’s revised tally of 1,038,000. However, single-family housing starts increased the highest since Nov 2013. Additionally, building permits also increased at a rate of 4.8% in October to 1,080,000, beating the consensus estimate of 1,040,000.

Benchmarks ended in the green zone on Thursday as upbeat economic reports and strong retail earnings results offset dismal data from the Euro-zone and China. Moreover, Intel Corp.’s (INTC) encouraging earnings outlook helped tech shares post solid gains. Rebound in oil prices boosted energy shares. The Dow increased 0.2% to end on another record high.

Markit’s November PMI survey for the Euro-Zone came in weaker than expected, with the index level reaching a 16-month low. Moreover, China's flash PMI released by HSBC declined to 50.0 in November, reaching a 6-month low.

Meanwhile, existing home sales gained 1.5% to seasonally adjusted annual rate of 5.26 million in October from September’s revised tally of 5.18 million. Sales numbers also beat the consensus estimate of 5.17 million. This was also the highest annual pace since Sep 2013. Moreover jobless claims for the week ending Nov 15 decreased to 291,000 from previous week’s level of 293,000. The number remained below 300,000 level for 10 consecutive weeks.

Components Moving the Index

The Home Depot Inc. (HD) reported an improvement in its financial results for the third quarter of fiscal 2014. The company’s adjusted earnings of $1.15 per share jumped nearly 21.1% from the year-ago quarter’s earnings of 95 cents and surpassed the Zacks Consensus Estimate of $1.13.

Net sales increased 5.4% to $20,516 million from $19,470 million in the year-ago quarter and beat the Zacks Consensus Estimate of $20,418 million. The company’s overall comparable-store sales (comps) increased 5.2% while comps in the U.S. stores grew 5.8%. The year-over-year improvement in top-line was mainly attributable to a 3.2% rise in the number of customer transactions and an increase of 2.3% in average ticket size.

Gross profit grew 5.7% to $7,185 million from $6,798 million in the comparable year-ago quarter, primarily due to higher sales. Gross profit margin expanded 10 basis points, compared with last year, to 35%.

Operating profit during the quarter improved 11.3% to $2,553 million from $2,293 million in the year-ago comparable quarter. Operating margin expanded 60 basis points (bps) to 12.4% from 11.8% in the year-ago quarter. The improvement in operating margin was driven by effective cost management.

After concluding the third quarter, Home Depot reaffirmed its sales growth outlook of 4.8% for fiscal 2014. The company now expects diluted earnings per share growth of 21% for fiscal 2014 with earnings of $4.54 per share.

Intel Corp.’s share price shot up nearly 5% to $35.95 on Thursday after the chipmaker provided an improved sales guidance for fiscal 2015 and also announced a dividend hike at its annual investor meeting. The increase in share price was the highest since 2001.

Intel initiated guidance for 2015. It projects sales to grow in the mid-single digits, gross margin to be about 62% and research & development plus MG&A spending of approximately $20 billion. Capital spending is expected to be around $10.5 billion, down from $11 billion projected for 2014. Analysts had projected sales growth of 3%.

The board of directors of Intel approved a 6.7% hike in its annual dividend. The new dividend comes to 96 cents per share, up from the last payout of 90 cents. The increased dividend will be paid beginning with the dividend that will be announced in the first quarter of 2015.

IBM Corp. (IBM) recently inked a seven-year deal with Deutsche Lufthansa AG and its Group companies for a whopping $1.25 billion. However, the deal awaits the approval of antitrust authorities and Lufthansa’s supervisory board to become effective.

Per the deal, IBM will take over Lufthansa’s information technology infrastructure division and all personnel associated with it from Apr 1, 2015 onward. During the tenure of the deal, IBM will bring new solutions that incorporate business analytics with mobile computing and social business to enable Lufthansa to attract more customers by offering them new and innovative services.

Moreover, through this deal, IBM will work toward making the airline’s IT process more efficient adopting cloud-computing technologies. This, in turn, is expected to generate an annualized cost-savings amounting to 70 million euros for the Lufthansa Group.

The Boeing Co. (BA) has received a $194.8 million modification contract from the U.S. Department of Defense. Per the contract, Boeing will procure 21 Lot 38 full rate production EA-18G airborne electronic attack kits. The contracting activity is The Naval Air Systems Command, Patuxent River, MD.

The contract work will be done at various locations, namely, Baltimore, MD (51% of the work will be performed here), Bethpage, NY (33%), St. Louis, MO (12%) and Fort Wayne, IN (4%). Work is expected to be over by 2016 end.

JPMorgan Chase & Co. (JPM), the largest bank in the U.S., announced a municipal bond deal with LPL Financial LLC, the wholly owned subsidiary of LPL Financial Holdings Inc. (LPLA). JPMorgan opened its door to LPL Financial’s extensive network of financial advisors by providing them access to the municipal bonds market.

LPL Financial, a leading organization of independent financial advisors, can now enter the municipal bonds market through JPMorgan. The extended services of LPL Financial’s 17,500 financial advisors to this market will help JPMorgan in developing its distribution channels.

In a separate development, JPMorgan along with Canadian retailer Sears Canada Inc announced its intention to end their 10-year credit card partnership, which includes the credit cards of Sears Card as well as Sears MasterCard. The agreement will lapse on its expiration date, which is Nov 15, 2015. Till then, JPMorgan will continue to provide services to Sears Canada’s clients.

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 gained 0.8%.

Next Week’s Outlook

Stocks have experienced another good week despite mixed foreign economic data. Japan slipped into a recession unexpectedly, but has managed to send positive signals by delaying a consumer tax hike. On the other hand data from the Eurozone and China continues to be mixed. However, the ECB president has provided indications of further monetary stimulus.

On the whole, domestic economic data has been positive in nature. Deal news and encouraging earnings have also boosted the markets. Next week also has several key economic reports lined up. This includes crucial GDP numbers, as well as data on consumer confidence, durable orders and the housing sector. If most of these reports are on the positive side, stocks could continue to register gains in the days ahead.

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