Dow 30 Stock Roundup: JNJ Beats, JPM Disappoints - Analyst Blog

The Dow notched up substantial gains during a holiday shortened week, boosted by several positive factors. Promising retail sales data propelled the blue chip index upward on Monday.

The Dow index gained again on Tuesday following upbeat quarterly results from key components. Encouraging industrial production numbers and China data egged on the blue chip index on Wednesday. Comments from the Fed Chair added to the positive sentiment. During the first three trading days, the Dow has gained 1.56%.

Last Week's Performance

The Dow dropped 0.9% last Friday, hit by another day of selling pressure in bio-tech and technology stocks. Disappointing corporate earnings also weighed on the markets.

Dismal corporate earnings results from JPMorgan led the decline among the Dow components after its shares plunged 3.7%. Higher wholesale prices in March and an increase in preliminary consumer sentiment in April failed to restrict the day's losses.

For the week, the blue-chip index ended 2.3% lower, snapping a three-week run of gains. Benchmarks declined for the week due to intense selling pressure in momentum and technology stocks. Additionally, discouraging Chinese trade data unnerved investors.

Pfizer Inc. PFE was a big drag at the start of the week. The stock led the decline among the Dow components on Monday. Shares of the company were down almost 3% after its breast-cancer drug palbociclib did well in clinical trials but the overall survival benefits was not yet revealed to be statistically significant. However, on Wednesday, benchmarks soared, primarily boosted by encouraging minutes from the central bank's policy meeting.

The Dow This Week

Encouraging retail sales data helped the Dow gain 0.9% on Monday. The U.S. Department of Commerce reported that seasonally adjusted sales of retail and food services rose 1.1% in March, its biggest gain since September 2012. The gain was led by the increase in demand for auto sales. Sales of motor vehicles jumped 3.1%, its biggest rise since September 2012. Investors also remained focused on recent developments in Ukraine.

The Dow gained 0.6% on Tuesday after blue-chip companies The Coca-Cola Company KO and Johnson & Johnson JNJ reported upbeat quarterly results. CPI improved 0.2% in March, higher than the consensus estimate of a 0.1% increase. The Empire State Manufacturing Index fell to 1.3 in April from 5.6 in March. This fall was in sharp contrast to the consensus estimate of a rise to 8.1. The day's mixed economic data had little impact on benchmarks.

Markets finished in the green on Wednesday, primarily boosted by encouraging industrial production data and better-than-expected Chinese economic data. Industrial production improved 0.7% in March after advancing 1.2% in February. Additionally, China's GDP increased 7.4% in the first quarter, more than the analysts' expectation of an increase by 7.3%. Fed Chairwoman Janet Yellen's speech in New York was another positive factor yesterday. The Dow gained substantially, by 1%.

Components Which Moved the Index

IBM Corp. IBM reported disappointing revenues in the first quarter of 2014, which missed the Zacks Consensus Estimate for the fifth straight quarter. However, earnings of $2.54 per share were in line with the Zacks Consensus Estimate.

Earnings per share declined 15.3% from the year-ago quarter and a massive 58.6% from the previous quarter due to lower revenue base and steep increase in total operating expenses.

The weaker-than-expected first-quarter results are expected to hurt IBM's ability to achieve fiscal 2014 earnings target of $18.00 per share. Shares declined 4.2% ($8.20) in after-hours trading yesterday.

The Coca-Cola Company started 2014 on a positive note, beating the Zacks Consensus Estimate for revenues in the first quarter while meeting earnings expectations as volumes gained slightly. This is the first time that Coca-Cola has beaten the Zacks Consensus Estimate for sales in the past six quarters. Shares were up 2% in pre-market trading on Tuesday.

First-quarter 2014 adjusted earnings came in at 44 cents per share, in line with the Zacks Consensus Estimate. Earnings declined 4% on a year-over-year basis due to currency headwinds as a strong dollar lowered the value of the company's ex-U.S. sales. Earnings grew 5% year over year on a constant currency basis as positive price/mix gains, strong developing market volumes and cost control made up for higher marketing costs.

Intel Corp INTC reported first-quarter earnings of 38 cents per share, just over the Zacks Consensus Estimate of 37 cents but somewhat lower than guidance indicated. The better than-expected gross margin drove the surprise. Intel has reported roughly in line with expectations in the last four quarters, so the last quarter was not too different. Guidance was in line with expectations.

Shares were up less than 1% during the day, but appreciated another 1.5% after the company reported on Tuesday. Intel's reported revenue was $12.76 billion, within the guidance range of 12.8 billion (+/-$500 million) and in line with the Zacks Consensus of $12.8 billion. This was down 7.7% sequentially and up 1.5% from the year-ago quarter.

Johnson & Johnson, the first among the large health care companies to report first quarter results, beat expectations yet again. The company's first-quarter 2014 earnings (excluding special items) were $1.54 per share, well above the Zacks Consensus Estimate of $1.48 per share and 6.9% above the year-ago earnings of $1.44 per share.

Despite the negative impact of currency fluctuation, Johnson & Johnson recorded growth on the back of strong pharma product sales. Johnson & Johnson's first quarter sales increased 3.5% year-over-year to $18.1 billion, just above the Zacks Consensus Estimate of $17.9 billion.

While operational factors favorably impacted sales by 5.3%, currency fluctuations had a negative impact of 1.8%.Including one-time items, Johnson & Johnson reported first quarter earnings of $1.64 per share, well above the year-ago earnings of $1.22.

JPMorgan Chase & Company JPM failed to override the tough backdrop that banks have been enduring since the year started and delivered a negative earnings surprise of 9.2%. The banking giant came out with earnings of $1.28 per share, missing the Zacks Consensus Estimate of $1.41 by a wide margin. This is also a massive deterioration from the year-ago number of $1.59.

Managed net revenue of $23.9 billion in the quarter was down 8% from the year-ago quarter. The top line also compared unfavorably with the Zacks Consensus Estimate of $24.6 billion.

Managed non-interest revenues were down 12% from the year-ago quarter at $13.0 billion. Net interest income also fell 2% year over year to $10.9 billion, primarily reflecting the impact of lower loan yields and lower trading and investment securities balances.

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 (Apr 10-16), the Dow has gained 0.03%.

Next Week's Outlook:

Fed Chair Yellen's comments have provided fresh impetus to the markets. But for Empire State Manufacturing numbers, key economic reports have also been on the positive side. Next week's reports will provide indications on the state of the housing market. Leading indicators and Durable Orders are among the other key reports.

If the majority of these reports are on the positive side, the bull run could well continue. However, much will also depend on earnings reports. A combination of these factors will possibly determine market direction going forward.

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