Dow 30 Stock Roundup: Cisco to Acquire OpenDNS, GE Sells Europe Private Equity Biz - Analyst Blog

The Dow experienced an eventful though holiday shortened week dominated by negotiations between Greece and its creditors. Stocks ended in the red on Monday after a breakdown in Greece’s debt negotiations with its lenders placed the country on the brink of a default. The Dow gained on Tuesday after Greece submitted a two-year bailout proposal to its lenders. Stocks closed on a positive note on Wednesday but failed to hold on to all their initial gains. The Dow declined on Thursday, following continual uncertainty among investors ahead of the referendum in Greece to be held over the weekend. The Dow has lost 1.3% during the first four trading days.

Last Week’s Performance

Last Friday, the Dow gained 0.3%, boosted by Nike’s NKE upbeat quarterly results. Nike reported fourth quarter earnings per share of 98 cents, beating the Zacks Consensus Estimate of 84 cents. Shares of the sportswear retailer gained 4.3%.

Meanwhile, the Greek government rejected their creditors’ proposal of a five month bailout extension. The Greek government and Eurozone finance ministers were scheduled to meet on Saturday to reach a cash-for-reform deal ahead of the country’s debt payment to the IMF on Jun 30.

Economic data on consumer sentiment was encouraging. The Thomson Reuters/University of Michigan’s final June consumer sentiment reading came in at 96.1, a five month high.

The blue chip index lost 0.4% over last week. Uncertainty over Greece’s bailout program weighed on the broader markets throughout the week. Negotiations between Greece and its lenders made little progress due to significant differences over pension cuts and tax increases, aimed at helping the country avoid a default.

Additionally, weakness in energy and transportation stocks also had a negative impact on benchmarks. However, a new ruling by the Supreme Court on the Affordable Care Act helped healthcare stocks buck the broader declining trend. Meanwhile, the U.S. economy contracted in the first quarter at a slower pace than the ‘second estimate’, banking on uptick in consumer spending.

The Dow This Week

Stocks ended in the red on Monday after a breakdown in Greece’s debt negotiations with its lenders placed the country on the brink of a default. Weakness in Chinese markets also added to the bearish sentiment. The Dow suffered its largest one-day decline in terms of points in more than two years, losing nearly 2% or 350.33 points.

Markets declined sharply after the Greek government ordered its banks to stay shut through Jul 6 in order to prevent the country’s financial system from collapsing. Eurozone finance ministers rejected Greece’s proposal for a one month bailout last Saturday.

The Greek government called for a referendum on whether to accept the cash-for-reform measures as demanded by its creditors. The country’s parliament approved Greece Prime Minister Alexis Tsipras’ call for a referendum to be held on Jul 5.

Investors also grappled with concerns in China, where stocks closed in the red despite the People’s Bank of China’s decision to trim interest rates. The Shanghai Composite Index finished 3.3% lower on Monday. Coming to the domestic front, the Pending Home Sales Index went up 0.9% to 112.6 in May.

The Dow gained 0.1% on Tuesday after Greece submitted a two-year bailout proposal to its lenders. Greece’s last-ditch efforts to resolve the breakdown in cash-for-reform talks with its creditors was welcomed by investors.

The Greek government asked for a new bailout plan to help the country pay a debt of about 29.15 billion euros due between 2015 and 2017. Greece has already defaulted on its debt payment of 1.55 billion euros to the IMF on Jun 30.

Coming to economic data, the Consumer Confidence Index advanced to 101.4 in June from 94.6 in May. Separately, the Chicago Business Barometer increased to 49.4 in June from May’s reading of 46.2.

For the month the Dow declined 2.2%. Stocks ended in the red for the month as uncertainty over Greece’s bailout program weighed on investor sentiment. Additionally, weakness in energy and transportation stocks also had a negative impact on benchmarks. However, a new ruling by the Supreme Court on the Affordable Care Act helped healthcare stocks buck the broader declining trend.

Meanwhile, the Federal Reserve signaled it will hike interest rates at a slower than expected pace. A series of positive economic reports bolstered the view that the economy is recovering after a weak first quarter economic growth. However, first quarter GDP decreased at an annual rate of 0.2%.

Stocks closed on a positive note on Wednesday but failed to hold on to all their initial gains. Uncertainty about the situation in Greece continued to linger. Additionally, energy stocks declined following a dramatic slide in oil prices on record crude inventories, further limiting gains. The blue-chip index gained 0.8%.

This was due to a slide in oil prices, caused by the first increase in U.S. crude inventories in more than two months. The Energy Information Administration said commercial crude inventories increased by 2.4 million barrels in the U.S. for the week ended Jun 26. As a result, benchmark U.S. crude price slumped 4.2%, the largest single-day loss recorded since Apr 8

However, markets were boosted by positive economic data, which indicated that the U.S. economic growth would be back on track soon. Private sector hiring increased at the fastest pace in six months in June. Additionally, the ISM Manufacturing Index increased to 53.5% in June. Construction spending increased 0.8% in May.

The Dow declined 0.2% on Thursday, following continual uncertainty among investors ahead of the referendum in Greece to be held over the weekend. The country has already defaulted on a payment to the IMF on Tuesday. It has failed to reach an agreement with its creditors despite hectic negotiations held over an extended period of time. Over the week, the blue-chip index lost 1.2%, its largest weekly decline since March.

Additionally, jobs numbers came in below expectations, adding to the markets’ gloom. According to the Bureau of Labor Statistics, the U.S. economy created a total of 223,000 jobs in May, lower than the consensus estimate of 227,000. This was also lower than the revised 254,000 jobs in May. Additionally, job gains for both May and June were revised downward.

The unemployment rate declined to 5.3% in June from 5.4% in May. This was the lowest level recorded in seven years. However, this was largely an outcome of a substantial number of individuals leaving the workforce. Meanwhile, average hourly earnings remained unchanged at $24.95 per hour. However, the metric posted year-over-year growth of 2%.

Components Moving the Index

Cisco Systems CSCO recently announced its plans to acquire a cloud-based security company, OpenDNS, for $635 million. This move is aimed at expanding its security portfolio.

Cisco expects the acquisition to close in the first quarter of next year, subject to customary closing conditions. OpenDNS will be incorporated into Cisco's security business group under the leadership of senior vice president and general manager, David Goeckeler.

San Francisco-based OpenDNS provides a cloud platform that offers online security solutions for both home and business users. OpenDNS’ services prevent computer attacks from particular Internet domains and encrypt web traffic to limit eavesdropping and other threats. Its services are easy to deploy and integrate and cater to more than 65 million customers across 160 countries.

The buyout will enhance Cisco’s current cloud security offerings by adding increased visibility and threat awareness of OpenDNS’ cloud delivered platform. The purchase will help the network equipment maker to broaden its efforts and meet the changing compliance and security needs.

The Boeing Company’s BA shares edged up 1.45% by the end of the trading session on July 1 to close at $140.73, on the back of three orders from the U.S. Department of Defense (DoD).

The largest order worth $358.9 million was essentially a modification of a previous contract for the procurement of long-lead items for the manufacture and delivery of aircraft. These include 9 U.S. Navy full rate production (“FRP”) Lot II P-8A aircraft, 16 U.S. Navy FRP Lot III P-8A aircraft, and 4 Royal Australian Air Force FRP Lot III P-8A aircraft.

Under a cooperative agreement, this order is a combination of purchase from the U.S. Navy (61%) and the government of Australia (39%). The order is expected to be completed by Dec 2018.

The second contract in terms of value came in at $85.3 million from the Missile Defense Agency which was also a modification contract for the $3.8 billion original contract. The order was placed for increasing the direct productive labor hour pool by 600,000 hours to award future task instructions. The expected delivery is slated for Dec 2018.

Worth nearly $10.1 million, the final contract from yesterday’s funding list was placed by the U.S. Navy for hardware integration for Phase II to integrate the Next Generation Jammer Pod onto the EA-18G aircraft. The Phase II hardware integration will ensure that the development, preparation and delivery of the aircraft modification design is appropriate for the technology development stage of the Next Generation Jammer P

General Electric Company GE announced the sale of its European private-equity business to Japan's Sumitomo Mitsui Banking Corp. for $2.2 billion. Subject to customary closing conditions, the deal is expected to close in the third quarter.

This latest divestment in GE’s sweeping overhaul of its finance arm pushes its asset sales past the $23 billion mark. The transaction follows GE’s agreement to sell the bulk of its vehicle fleet financing businesses to Canada’s Element Financial Corp. for $6.9 billion. With these transactions, GE is accelerating its $200 billion plan to shed its financial assets as it refocuses on its core manufacturing business that makes heavy-duty products such as gas turbines, jet engines and medical scanners.

The offloaded GE unit finances buyouts and other transactions for private-equity firms in Europe. Per the deal, GE will keep its $1 billion investment in the European Senior Secured Loan Programme and European Loan Programme, the company said.

The Walt Disney Company DIS has decided to merge two of its units to effectively cater to the tech-savvy consumer preferences these days.

The Consumer Products and Interactive divisions will be fused together to form Disney Consumer Products and Interactive Media (DCPI) division. The company will report under the new structure from fiscal 2016.

DCPI will be jointly controlled by Leslie Ferraro, president, Disney Consumer Products, and Jimmy Pitaro, president, Disney Interactive. No layoffs are expected.

Also, Disney Publishing Worldwide will be incorporated into the DCPI unit. A fresh team called the DCPI Labs will be created to develop newer products by using latest technologies.

Apple AAPL, as the company’s new music streaming service Apple Music went live at 11 AM EST on June 30. Apple Music will function as a subscription-based service, giving users full access to the iTunes Library for $9.99 a month. Dedicated experts will also handpick songs and artists to create custom streaming radio stations to fit the preferences of subscribers, similar to Pandora (P) and Google’s (GOOGL) Play Music.

Apple Music is basically a reboot of the Beats Music service, part of Beats by Dr. Dre, which Apple purchased last year for over $3 billion. Apple’s program sticks out because it will employ real people to curate the radio stations, whereas Pandora and Google Play Music function automatically. The subscriptions will be offered on a free 3-month trial basis to begin with.

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 declined 1.6%.

Next Week’s Outlook

Negotiations over Greece dominated proceedings this week. Stocks experienced a second successive decline during the period, weighed down by tensions about the outcome of the crisis. Meanwhile, jobs data have also come in softer than expected, leading investors to believe that a rate hike may be delayed. Ultimately, the referendum to be held over the weekend will hold the key to the movement of stocks in the days ahead.

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