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What's In Store for Dow ETF in Q4 Earnings?

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The Dow Jones Industrial Average has been hogging investors’ attention post election. This is especially thanks to President-elect Donald Trump’s pro-growth policy that has benefited Dow Jones more than its large cap counterparts like the S&P 500. In fact, Dow Jones is within striking distance of the major 20,000 milestone (read: Time to Prepare for 'Trump Slump' with These ETFs?).

Trump’s policies of increased government spending, reduced regulations and increased tax cuts will likely boost economic growth and create more jobs in the country, thereby flooding companies with excess cash and earnings growth. As a result, SPDR Dow Jones Industrial Average ETF (DIA - Free Report) tracking the Dow Jones Industrial Average has been in vogue over the past two months. Notably, DIA is also on the verge of hitting an important milestone of $200.

Can DIA hit $200 as the Q4 earnings season kick starts?

Quick Look at Q4 Earnings Trends

The Q4 earnings season has already set in with earnings expected to grow 4.2% on 3.8% higher revenues. The earnings strength seems broad based with 11 of the 16 Zacks sectors likely to post an earnings increase with energy being the likely star sector of Q4. Energy, which was the biggest drag on the earnings growth picture over the past two years, is likely to make a strong comeback for the first time after eight quarters of decline (read: 4 Sector ETFs & Stocks to Profit from Q4 Earnings Season).

Earnings Predictions for Top Stocks in DIA

The ETF holds 31 stocks in its basket with The Goldman Sachs Group Inc. (GS - Free Report) , 3M Company (MMM - Free Report) , International Business Machines Corporation (IBM - Free Report) ,UnitedHealth Group Incorporated (UNH - Free Report) and Boeing Company (BA - Free Report) collectively accounting for 31.3% of the portfolio. Let’s delve into the earnings picture of these firms that will likely set up the movement of the fund in the coming days.

Goldman is slated to release earnings before the opening bell on January 18. It has a Zacks Rank #2 (Buy) and an Earnings ESP of -1.26%%, indicating a lower probability of beating estimates this quarter. According to the our surprise prediction methodology, a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) when combined with a positive Earnings ESP has chances of an earnings beat, while a Zacks Rank #4 or 5 (Sell rated) are best avoided. The stock has seen positive earnings estimate revision of 58 cents over the past 90 days for the yet-to-be-reported quarter. Additionally, it delivered an average positive earnings surprise of 19.44% in the last four quarters. The stock has a VGM score (V stands for Value, G for Growth and M for Momentum) Score of ‘D’ (see: all the ETFs Categories here).

3M has a Zacks Rank #3 and an Earnings ESP of +0.54%, indicating a reasonable chance of beating estimates this quarter. The stock delivered positive earnings surprises in the last four quarters, with an average beat of 4.59%. However, the stock saw negative earnings estimate revision of 10 cents over the past 90 days for the to-be-reported quarter. The stock has a VGM Score of ‘D’. The company is expected to report before the opening bell on January 24.

International Business Machines is expected to release its earnings on January 19 after market close. It has a Zacks Rank #4 (Sell) and an Earnings ESP of 0.00%. IBM saw a negative earnings estimate revision of 6 cents over the past three months for the to-be-reported quarter but delivered positive earnings surprises in the last four quarters, with an average beat of 4.67%. The stock has a VGM Score of ‘C’.

UnitedHealth, expected to report before the opening bell on January 17, has a Zacks Rank #2 and an Earnings ESP of +0.97%, indicating chances of outperformance this quarter. The stock has seen downward earnings estimate revision by a penny for the yet-to-be-reported quarter over the past 90 days but delivered positive earnings surprises in the last four quarters, with an average beat of 3.86%. The stock has a top VGM Score of ‘A’ (read: Inside the 5 Top Performing Stocks of the Dow ETF).

Boeing has a Zacks Rank #3 and an Earnings ESP of +0.86%, indicating a reasonable chance of beating estimates this quarter. It delivered an average positive earnings surprise of 24.66% in the last four quarters. However, the Zacks Consensus Estimate for fourth-quarter 2016 earnings was revised down by 11 cents over the past three months. The stock has a solid VGM Score of ‘A’. The company will report before the opening bell on January 25.

Bottom Line

Given that some companies have a favorable Zacks Rank and a reasonable probability of beating the earnings estimate this quarter, Dow ETFs has the potential to hit the $200 landmark.

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