Market Overview

Market Wrap For May 20: Markets Sharply Lower On Fed Talk, Disappointing Earnings

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U.S. stocks declined following troubling words from a Federal Reserve official.

In a speech delivered Tuesday, the Fed's Charles Plosser hinted that the Federal Reserve should reduce the pace of its asset purchases in measured steps but an increase in interest rates “may come sooner than many expect.”

Plosser, who is President of the Federal Reserve Bank of Philadelphia, did however share an optimistic view over the housing recovery and noted that the economy is on “firmer footing” today than it was several years ago.

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  • The Dow lost 0.83 percent, closing at 16,374.31.
  • The S&P 500 lost 0.65 percent, closing at 1,872.83.
  • The Nasdaq 0.70 percent, closing at 4,096.89.
  • Gold gained 0.09 percent, trading at $1,294.90 an ounce.
  • Oil gained 0.29 percent, trading at $102.41 an ounce.
  • Silver gained 0.29 percent, trading at $19.41 an ounce.

News of Note

ICSC Retail Store Sales declined 1.3 percent week over week after declined 0.1 percent last week.

Redbook Chain Store Sales rose 3.9 percent year over year after gaining 4.2 percent last week.

Germany's PPI declined 0.1 percent in April after dropping 0.3 percent in March. On year, Germany's PPI is -0.9 percent.

United Kingdom's inflation rose to 1.8 percent on year in April from 1.6 percent in March. Analysts were expecting inflation to rise to 1.7 percent in April.

Analyst Upgrades and Downgrades of Note

Many research firms initiated coverage of Ally Financial (NYSE: ALLY). Of note, analysts at Deutsche Bank and Goldman Sachs both initiated coverage of Ally with a Hold and Neutral rating with a $26 price target. Analysts at JPMorgan initiated coverage of Ally with an Overweight rating and $30 price target. Shares lost 0.86 percent, closing at $24.24.

Analysts at Credit Suisse downgraded Campbell Soup (NYSE: CPB) to Underperform from Neutral. Taking the opposite side, analysts at Citigroup maintained a Hold rating on Campbell Soup with a price target raised to $45 from a previous $43. Shares lost 0.05 percent, closing at $44.04.

Analysts at Topeka Capital initiated coverage of Coach (NYSE: COH) with a Hold rating and $46 price target. Shares lost 1.15 percent, closing at $41.39.

Analysts at Morgan Stanley downgraded DIRECTV (NASDAQ: DTV) to Equal-weight from Overweight. Shares lost 1.96 percent, closing at $82.99.

Analysts at Wunderlich maintained a Hold rating on DISH Network (NASDAQ: DISH) with a price target raised to $56 from a previous $51. Shares lost 3.08 percent, closing at $57.53.

Analysts at Credit Suisse maintained an Underperform rating on Darden Restaurants (NYSE: DRI) with a price target lowered to $46 from a previous $48. Shares lost 2.04 percent, closing at $47.98.

Analysts at JPMorgan maintained a Neutral rating on Dillard's (NYSE: DDS) with a price target raised to $95 from a previous $85. Shares lost 0.16 percent, closing at $109.08.

Analysts at Wells Fargo upgraded Dow Chemical (NYSE: DOW) to Outperform from Market Perform. Shares gained 0.81 percent, closing at $49.74.

Analysts at Barclays maintained an Overweight rating on EOG Resources (NYSE: EOG) with a price target raised to $129 from a previous $126. Shares lost 0.40 percent, closing at $101.89.

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Analysts at Wells Fargo downgraded J.C. Penney (NYSE: JCP) to Underperform from Market Perform. Shares lost 4.59 percent, closing at $8.93.

Analysts at Topeka Capital initiated coverage of Michael Kors (NYSE: KORS) with a Buy rating and $117 price target. Shares lost 1.28 percent, closing at $91.86.

Analysts at Topeka Capital initiated coverage of Netflix (NASDAQ: NFLX) with a Buy rating and $421 price target. Shares gained 1.97 percent, closing at $371.67.

Analysts at UBS maintained a Neutral rating on Williams-Sonoma (NYSE: WSM) with a price target raised to $65 from a previous $63. Shares lost 1.55 percent, closing at $63.40.

Equities-Specific News of Note

Target (NYSE: TGT) fired the president of its Canadian operations Tony Fisher and will be replaced with a veteran of the company, Mark Schindele. Shares lost 2.88 percent, closing at $56.61.

Verizon's (NYSE: VZ) CEO Lowell McAdam said that owning a satellite company (referring to Dish is not something he is interested in at this point. Shares of Verizon lost 1.02 percent, closing at $48.65.

KKR's (NYSE: KKR) $2.85 billion offer to acquire Australian based Treasury Wine Estates has been declined by the company which cited a low valuation. Shares lost 1.80 percent, closing at $22.86.

SAP (NYSE: SAP) has purchased SeeWhy, a provider of behavior analysts online marketing tools for an undisclosed amount. Shares lost 0.81 percent, closing at $74.81.

Valeant (NYSE: VRX) said that any future bids for Allergan (NYSE: AGN) will not be an all cash offer. Separately, Allergan projected its EPS to increase by 20 percent to 25 percent in 2015 and grow at an annual compound rate of 20 percent over the following five years. Allergan also guided towards a double-digit revenue growth over the next five years. Shares of Valeant gained 2.96 percent, closing at $130.97 while shares of Allergan gained 1.38 percent, closing at $161.90.

Microsoft (NASDAQ: MSFT) launched its third generation Surface Pro tablet with an improved 2160x1440 resolution and a 3:2 aspect ratio. Shares lost 0.18 percent, closing at $39.68.

Caterpillar (NYSE: CAT) announced that sales of its machines declined 13 percent year over year during the three months period ending in April. Sales declined 25 percent in the Asia Pacific region while declining 28 percent and 24 percent in Latin America and Europe, respectively. Shares lost 3.63 percent, closing at $101.56.

AstraZeneca (NYSE: AZN) said that it will not negotiate with Pfizer (NYSE: PFE) over a potential acquisition, citing UK takeover rules. Shares of AstraZeneca gained 2.21 percent, closing at $72.20 while shares of Pfizer lost 0.10 percent, closing at $29.25.

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Goldman Sachs (NYSE: GS) is considering a potential sale of its metals wearhouse business, Metro International Trade Services. Shares lost 0.84 percent, closing at $156.35.

Executives at Credit Suisse (NYSE: CS) commented that its recent $2.6 billion fine has yet to result in an instance where clients refused to continue conducting business with the bank. Separately, Moody's revised its outlook on Credit Suisse to negative from stable. Shares gained 0.93 percent, closing at $29.37.

Carnival Cruises (NYSE: CCL) announced it will expand in Australia by adding two ships by 2015. Shares gained 0.88 percent, closing at $39.18.

Winners of Note

This morning, Red Robin Gourmet Burgers (NASDAQ: RRGB) reported its first quarter results. The company announced an EPS of $0.82, beating the consensus estimate of $0.72. Revenue of $340.5 million beat the consensus estimate of $334.8 million. Net income for the quarter rose to $11.9 million from $9.5 million in the same quarter a year ago as comparable restaurant revenue rose 5.4 percent and restaurant-level operating profit as a percent of restaurant revenue rose to 22.4 percent from 21.5 percent. The company noted that it plans to open 20 new Red Robin restaurants and five Red Robin's Burger Works in fiscal 2014. Additionally, comparable restaurant revenue for the full year fiscal 2014 is guided to be in the low-single digits. Shares gained 12.45 percent, closing at $71.80.

British defense and aerospace based Cobham has agreed to purchase Aeroflex (NYSE: ARX) for $1.46 billion, or $10.50 a share. Shares of Aeroflex closed on Monday at $8.31, implying shareholders will receive a premium slightly above 25 percent. Shares of Aeroflex surged to new 52-week highs of $10.47 before closing the day at $10.42, up 25.39 percent.

Decliners of Note

This morning, Staples (NASDAQ: SPLS) reported its first quarter results. The company announced an EPS of 0.18, missing the consensus estimate of $0.21. Revenue of $5.65 billion beat the consensus estimate of $5.62 billion. Net income for the quarter fell to $115 million from $170 million in the same quarter a year ago as traffic fell four percent in the quarter resulting in a 4.9 percent decrease in North American Stores and Online revenue to $2.63 billion. Comparable-store sales fell four percent in the quarter, leading to a 270 bps drop in the company's operating income rate to 3.5 percent. Staples issued guidance and sees its second quarter EPS being in a range of $0.09 to $0.14, below the consensus estimate of $0.15. Shares lost 12.62 percent, closing at $11.70.

This morning, Dick's Sporting Goods (NYSE: DKS) reported its first quarter results. The company announced an EPS of $0.50, missing the consensus estimate of $0.52. Revenue of $1.44 billion missed the consensus estimate of $1.46 billion. Net income for the quarter rose to $69.98 million from $64.82 million in the same quarter a year ago despite comparable-store sale gains of 1.5 percent falling short of the company's previous guidance of a three percent to four percent gain. Dick's Sporting Goods issued downside guidance and lowered its full year fiscal 2014 EPS to a range of $2.70 to $2.85 from a prior $3.03 to $3.08 range. The revised EPS projection falls noticeably below the consensus estimate of $3.08. Shares hit new 52-week lows of $43.51 before closing the day at $43.60, down 17.98 percent.

This morning, The TJX Companies (NYSE: TJX) reported its first quarter results. The company announced an EPS of $0.64, missing the consensus estimate of $0.67. Revenue of $6.49 billion missed the consensus estimate of $6.60 billion. Net income for the quarter rose to $454.32 million from $452.89 million in the same quarter a year ago as same-store-sales rose one percent. However, the company issued guidance and sees its second quarter EPS being in a range of $0.70 to $0.74 versus the consensus estimate of $0.74. The company lowered its full year fiscal 2015 EPS guidance to a range of $3.05 to $3.17 from a previous range of $3.05 to $3.19 and below the consensus estimate of $3.19. Shares lost 7.62 percent, closing at $53.95.

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The Street.com's pharmaceutical expert Adam Feuerstein wrote noted that Intercept's (NASDAQ: ICPT) liver disease drug may have caused significant lipid abnormalities during a Phase 3 clinical trial evaluation. According to Feuerstein, the company's executives may have downplayed the negative observations back in January 2014 just before shares surged from $72 a share to $445 a share. Shares lost 14.10 percent, closing at $223.34.

Earnings of Note

This morning, Home Depot (NYSE: HD) reported its first quarter results. The company announced an EPS of $0.96, missing the consensus estimate of $0.99. Revenue of $19.7 billion missed the consensus estimate of $19.95 billion. Net earnings for the quarter rose to $1.4 billion from $1.2 billion in the same quarter a year ago as the average ticket rose 0.6 percent to $57.59 and the company processed 344.5 million transactions, up 2.2 percent. The company said that it had a slow start to the spring season in regions that were affected by weather related issues. The company did note during its conference call that sales lost in the first quarter will be made up in the second quarter. As such, the company raised its second quarter EPS guidance to $4.42, in-line with the consensus estimate. The company also reaffirmed a revenue growth of 4.8 percent for the full year fiscal 2014. Shares gained 1.91 percent, closing at $77.96.

After the market closed, Salesforce.com (NYSE: CRM) reported its first quarter results. The company announced an EPS of $0.11, beating the consensus estimate of $0.10. Revenue of $1.23 billion beat the consensus estimate of $1.21 billion.

Quote of the Day

“One of the most encouraging signs for the economy comes from the labor market, believe it or not. Employers added 288,000 jobs in April, the strongest gain since January 2012, and job growth in February and March were revised upward by a total of 36,000. The gains in April were broad-based across sectors, including 32,000 net new jobs in construction. Indeed, net job growth has exceeded 200,000 in five of the past seven months, with only the frozen months of December and January showing disappointing numbers. Even if we include those weak months, the economy has added more than 200,000 jobs per month on average over the past seven months.” – The Fed's Charles Plosser speaking today.

Posted-In: Adam FeuersteinEarnings News Econ #s Economics Federal Reserve After-Hours Center Movers Best of Benzinga

 

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