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Dow 30 Stock Roundup: JPMorgan, Goldman Sachs, UnitedHealth Beat

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The Dow traversed a holiday shortened week shakily, suffering steady losses throughout. Markets remained closed on Monday due to Martin Luther King Jr. Day. Comments from the President-elect led the dollar and the subsequently the index to move lower on Tuesday. The Dow continued to languish in the red on Wednesday despite a rebound on financials. On Thursday, the index continued to suffer losses as investors braced themselves for Trump’s presidential inauguration. 

Last Week’s Performance

The Dow gained marginally last Friday, increasing by 0.03% on the back of financial sector’s encouraging earnings results. Better-than-expected fourth quarter earnings from banking giants such as Wells Fargo & Company (WFC - Free Report) , Bank of America Corp. (BAC - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) were primarily responsible for Friday’s gains.

Additionally, PPI increased 0.3% last month, in line with the consensus estimate. Retail sales increased by 0.6% last month to $469.1 billion, in line with the consensus estimate. Sales also rose 4.1% from the year ago level.

The Dow lost 0.4% last week. Healthcare stocks took a hit after President-elect Trump said more bidding was needed on drug prices, indicating possible legislation that could erode the sector’s profitability. Moreover, concerns over Trump’s policies had a negative impact on investor sentiment. Separately, energy sector endured a roller coaster ride last week as increase in rig counts and record exports from Iraq’s southern Basra ports offset strong demand growth in China.

The Dow This Week

Markets remained closed on Monday due to Martin Luther King Jr. Day. The Dow moved 0.3% lower on Tuesday after comments from President-elect Trump caused the U.S. dollar to decline against major currencies, which in turn dragged down financials. Trump said in an interview on Friday that China’s intention to devalue the yuan is a major factor behind strengthening the dollar.

Separately, U.K. Prime Minister Theresa May indicated that she will ask for a parliamentary vote on Britain’s exit from the European Union (EU). May’s comments led the British pound to jump 2.5% against the dollar yesterday.

The index lost 0.1% on Wednesday even as strong rebound in the financial sector led markets to end mostly in the green. Financial sector registered healthy gains on Wednesday following heightened chances of an increase in the pace of rate hikes. In a speech at the Commonwealth Club in San Francisco, Yellen signaled that the Fed may hike the key interest rate “a few times” over the next two years.

Moreover, encouraging economic data also boosted the sector along with the broader markets. CPI and core-CPI gained 0.3% and 0.2%, respectively, last month, both in line with consensus estimates. Industrial production increased by 0.8% in December, higher than the consensus estimate of a 0.7% increase.

Decrease in shares of UnitedHealth Group Inc. (UNH - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) was the primary reason behind the Dow’s decline yesterday. Shares of UnitedHealth dropped 1.8% despite reporting robust fourth quarter earnings results a day earlier. Meanwhile, Goldman Sachs’ shares declined 0.6% despite announcing better-than-expected fourth quarter earnings results.

The index declined 0.4% on Thursday as investors prepared themselves for Trump’s inauguration as the 45th President of the U.S. Also, ECB’s decision to keep key rates unchanged had a negative impact on markets. Investors also kept a close watch on fourth quarter earnings results. Separately, industrials emerged as the only gainers yesterday following strong gains in rail stocks. The Dow ended in the red for the fifth straight session, registering its lengthiest losing streak since last November.

Components Moving the Index

JPMorgan reported fourth-quarter 2016 earnings of $1.71 per share, easily surpassing the Zacks Consensus Estimate of $1.42. Also, the figure reflects a 30% rise from the year-ago period. Notably, the results included a legal charge of $230 million and a tax benefit of $475 million related to the utilization of certain deferred tax assets.

Managed net revenue of $24.3 billion in the quarter was up 2% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $23.1 billion. A 31% jump in fixed income market revenues and 8% growth in equity market trading were the primary reasons for top-line improvement.

Zacks Rank #2 (Buy) rated JPMorgan’s credit quality deteriorated during the quarter. As of Dec 31, 2016, non-performing assets were $7.5 billion, up 7% from the year-ago period. Tier 1 capital ratio (estimated) was 14.1% as of Dec 31, 2016 compared with 13.5% as of Dec 31, 2015. (Read: JPMorgan (JPM - Free Report) Beats Q4 Earnings on Robust Bond Trading)

Goldman Sachs fourth-quarter 2016 results recorded a positive earnings surprise of 6.7%, driven by a surge in fixed-income revenues. The company reported earnings per share of $5.08, outpacing the Zacks Consensus Estimate of $4.76. Net earnings of $2.3 billion reflected a whopping rise from the prior-year quarter. The stock has a Zacks Rank #2.

For full-year 2016, the company’s reported revenues of $30.6 billion were down 9% year over year. However, revenues managed to beat the Zacks Consensus Estimate of $29.9 billion. (Read: Goldman (GS - Free Report) Tops Q4 Earnings Estimates on Solid Revenues)

Goldman’s net revenue climbed 12% year over year to $8.2 billion in the quarter under review. In addition, revenues exceeded the Zacks Consensus Estimate of $7.4 billion.

As of Dec 31, 2016, the company’s Common Equity Tier 1 ratio was 13.1% under the Basel III Advanced Approach, highlighting the valid transitional provisions. 

UnitedHealth reported fourth-quarter 2016 earnings of $2.11 per share, beating the Zacks Consensus Estimate of $2.07. Earnings improved 50.7% year over year. UnitedHealth posted revenues of $47.5 billion compared with the Zacks Consensus Estimate of $46.8 billion. Also, revenues grew 9% year over year.

For full-year 2016, operating earnings were $13.3 billion, up 20.5% year over year, or $8.05 per share, up 24.8% year over year. Earnings easily surpassed the Zacks Consensus Estimate of $8.01 and were above the company’s own guidance of ‘approximately $8’.

UnitedHealth affirmed its 2017 guidance provided last month. It estimates revenues of $197 billion to $199 billion, net earnings of $8.75 to $9.05 per share, adjusted net earnings of $9.30 to $9.60 per share, and cash flows from operations of $11.5 billion to $12 billion. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Exxon Mobil Corporation (XOM - Free Report) recently announced its intention to more than double its Permian Basin resource of 6 billion barrels of oil equivalent. The company aims to achieve this through the buyout of companies owned by the Bass family of Fort Worth, TX.

These acquired assets are estimated to hold resources of 3.4 billion barrels of oil equivalent in New Mexico’s Delaware Basin. Alongside an upfront payment of $5.6 billion, Zacks Rank #3 (Hold) rated Exxon Mobil will make a series of additional contingent cash payments of up to $1 billion. The payments are to be made from 2020 and ending no later than 2032, in accordance to the development of the resource. (Read: Exxon Mobil to Buy Bass Family Assets, Double Permian Yield)

The Boeing Company (BA - Free Report) has received a commitment for up to 205 airplanes from SpiceJet, an India-based low-cost airline. SpiceJet placed the order with the intention of expanding its domestic and international operations. Boeing has a Zacks Rank #3.

Value of the airplanes at current list prices comes to nearly $22 billion. However, it goes without saying that the SpiceJet will enjoy a substantial discount on this amount. The list price of each 737 MAX 8 is about $110 million. Although we expect a discount of approximately 40% on the price as it is, an even higher discount wouldn’t be surprising.

The deal covers 100 new 737 Max 8s, 42 Max jets and an additional 13 737 Max jets. In Dec 2016, Boeing's orders & deliveries website had attributed the order and purchase rights for 50 additional airplanes to an unidentified customer.

This means that bookings for 155 planes had already been made and the remaining 50 planes stand as a commitment from SpiceJet, if the airline later decides to buy more planes. (Read: Boeing (BA - Free Report) Wins Order for 205 737 MAX 8 Jets from SpiceJet)

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 0.8%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

+0.5%

-1.5%

GS

-5.4%

+43.1%

IBM

-3%

+3.4%

HD

-0.2%

-1.5%

BA

+0.2%

+18%

UNH

-2.4%

+11%

MCD

+1.2%

-3.1%

TRV

+0.3%

+0.4%

JNJ

-0.8%

-8.7%

AAPL

+0.7%

+19.8%

Next Week’s Outlook

The Dow is passing through difficult times, but investors as a whole are also awaiting the presidential inauguration with bated breath. Trump’s ascendancy to this high office has been a remarkable one, with initial panic giving way to enthusiasm among investors.

However, recent comments from the new President have made markets particularly uneasy. The events of next week, and indeed, those to follow are likely to determine the course of stocks not just for the short term but also possibly for a longer period of time.

Zacks' Top 10 Stocks for 2017

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