Dow 30 Stock Roundup: Home Depot Earnings Impress, Merck to Buy Peloton Therapeutics

Swarup Gupta

The index suffered a difficult week as investors braced for a protracted U.S.-China trade war. The decision to effectively ban Huawei weighed heavily on tech stocks. However, a temporary reprieve to the Chinese tech major provided some respite to American bourses for a single trading day.

By the end of the week, the writing on the wall was clear and traders and individual investors alike were bracing for a long trade conflict. Analysts were highlighting signs that the trade war was starting to trigger an economic slowdown.

Last Week’s Performance

The index declined 0.4% last Friday, following news that trade-related negotiations between the United States and China have stalled. Investors sold risky assets like equities due to concerns about global economic slowdown.

Last week was a disappointing one for Wall Street. The Dow declined 0.7%, marking its fourth-straight weekly losses. Notably, this was the Dow’s biggest weekly losing streak since May 2016.

Trade-related tensions, which have intensified since the second week of May, escalated further. After the U.S. government hiked the existing tariff rate to 25% from 10% on $200 billion Chinese goods, China retaliated by imposing 25% tariff on $60 billion U.S. goods.

Further, President Trump issued an executive order preventing U.S. companies from using information and communications technology equipment from sources which “pose an unacceptable risk to the national security of the United States.” Following the order, the Commerce Department added Chinese telecom behemoth Huawei Technologies to the Bureau of Industry and Security (BIS) Entity List

The Dow This Week

The index lost 0.3% on Monday as blacklisting of the Chinese tech behemoth Huawei by the U.S. government hit technology stocks. Several large U.S. tech giants are cancelling licenses that they had given to Huawei for using high-tech U.S. products.

The index gained 0.8% on Tuesday after the U.S. government provided temporary relief to Huawei Technologies. On May 21, the U.S. government said that it will provide a 90-day reprieve to Huawei before taking tougher trade measures.

During these 90 days, the U.S. government will issue temporary licenses to U.S. suppliers of the Chinese telecom behemoth so that Huawei does not face any immediate supply-chain management issues.

The index lost 0.4% on Wednesday as the trade conflict between the United States and China worsened. On May 22, U.S. Treasury Secretary Steven Mnuchin said the schedule for the next round of trade negotiations with China remains undecided. Further, President Trump said he would not push his infrastructure legislation if Democrats continue to investigate him through several committees.

The index slumped 1.1% on Thursday, suffering a more than 250-point loss as investors braced for a protracted U.S.-China trade war. The IHS Markit index indicated that U.S. manufacturing growth witnessed its slowest pace in a decade in May. This led market watchers to believe that trade tensions are starting to cause an economic slowdown.

Components Moving the Index

The Home Depot, Inc. HD posted better-than-expected earnings for first-quarter fiscal 2019, retaining its beat streak for five years now. Adjusted earnings of $2.27 per share increased 9.1% from $2.08 in the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate of $2.16.

Net sales grew 5.7% to $26,381 million from $24,947 million in the year-ago quarter and surpassed the Zacks Consensus Estimate of $26,298 million. While the company's overall comps increased 2.5%, in the United States, comps grew 3%.

Backed by solid growth strategies as well as present macroeconomic and housing backdrop, Zacks Rank #3 (Hold) Home Depot reaffirmed its sales and earnings view for fiscal 2019, which has 52 weeks.

It expects sales growth of nearly 3.3%, with about a 5% increase in comps (for the comparable 52-week period). Additionally, the company anticipates earnings per share of $10.03 for fiscal 2019, up nearly 3.1% year over year. (Read: Home Depot Earnings & Sales Surpass Estimates in Q1)

Merck & Co., Inc. MRK announced a definitive agreement to buy small, private cancer biotech, Peloton Therapeutics, for an upfront payment of $1.05 billion in cash. The acquisition will add Peloton’s novel, late-stage renal cell carcinoma (RCC) candidate, PT2977 to Zacks Rank #2 (Buy) Merck’s oncology pipeline, which is currently riding on the success of its blockbuster PD-L1 inhibitor Keytruda.

PT2977, an oral HIF-2α inhibitor, is currently being evaluated in multiple cancer studies including phase II studies in von Hippel-Lindau (VHL) disease-associated RCC and in combination with Exelixis, Inc.’s EXEL Cabometyx (cabozantinib), a VEGFR-targeting agent, in metastatic RCC and a phase I/II study in metastatic RCC.

In addition to the upfront payment, Merck will also be entitled to pay a further $1.15 billion of potential milestones payments. The transaction is expected to close in the third quarter of 2019. (Read: Merck to Buy Private Cancer Drugmaker Peloton Therapeutics)

Microsoft Corporation MSFT recently voiced its opinion on making gaming platforms safer for everyone, via a blog post by Head of Xbox, Phil Spencer.

The company is focused on digital gaming community, which is lately under scrutiny for “growing toxic stew of hate speech, bigotry and misogyny.”

In a bid to address these concerns, Spencer stresses on making interactive platforms safer and more welcoming for use by introducing “moderation features” to Xbox Live platform by the end of 2019.

Microsoft notes that Xbox Safety team dubbed as “Defenders of Joy” is working on tackling the online gaming threats and devise effective filters to eliminate toxic content. Xbox has also revamped its community standards for safer gameplay.

Notably, Xbox live monthly active users came in at $63 million, up 7% year over year in the third quarter of fiscal 2019. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

JPMorgan Chase & Co. JPM has inked a deal to acquire InstaMed in order to expand its reach into the lucrative U.S. healthcare payments market. Though financial terms of the deal were not disclosed, CNBC reported the value to be more than $500 million (making it the bank’s biggest acquisition since the 2008 financial crisis).

Founded in 2004, Philadelphia-based InstaMed offers automated billing services linking hospitals and doctors’ offices with patients and insurers. The firm has nearly 300 employees and processed $94 billion worth of transactions last year.

The deal will thus complement Zacks Rank #3 JPMorgan’s huge corporate payments infrastructure, which processes approximately $6 trillion of payments on a daily basis. JPMorgan plans to offer InstaMed to its entire client base and will likely integrate it with its bill paying apps. (Read: JPMorgan Expands Into Healthcare Payments, to Buy InstaMed)

Johnson & Johnson JNJ announced that the FDA has granted priority review to a supplemental new drug application (sNDA) looking for label expansion of its type II diabetes medicine, Invokana. The sNDA is looking for approval of Invokana, a SGLT2 inhibitor, for slowing the progression of chronic kidney disease (CKD) in patients with type II diabetes when used in addition to standard of care.

The sNDA filing is based on data from the phase III CREDENCE renal outcomes study, data from which has shown that Invokana significantly reduces the risk of renal failure, dialysis or kidney transplantation, and renal or cardiovascular death in patients with type II diabetes and CKD.

Zacks Rank #3 J&J had filed a sNDA in March to include data from the CREDENCE study on the label of Invokana. (Read: J&J's Invokana sNDA Gets Priority Review Status From FDA)

The Boeing Company BA recently secured a modification contract to upgrade its F/A-18E/F Super Hornet aircraft. Valued at $163.9 million, the contract has been awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Per the terms of the deal, Zacks Rank #3 Boeing will provide for the service life modification (SLM) of up to 10 F/A-18E/F Super Hornet jets. The SLM will extend the operational service life of the aircraft from 6,000 to 10,000 flight hours.  

Work related to the deal will be executed in St. Louis, MO and San Antonio, TX, and is expected to be completed by May 2021. (Read: Boeing Wins $164M Modification Deal to Upgrade F/A-18 Jets)

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 past six months. Over the last five trading days, the Dow has declined 0.5%.

Next Week’s Outlook

Investors are now worried about the repercussions of a trade conflict, which threatens to go on for quite some time. Oil prices are moving lower as are bond yields, clear signs that a slowdown may be around the corner. The likely slump in. manufacturing has market watchers worried that a domestic slump may be around the corner.

Markets are likely to witness significant volatility in the days ahead. Unless Washington and Beijing strike a deal sooner rather than later, equity markets are likely to suffer severe declines in the days ahead.

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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
 
Johnson & Johnson (JNJ) : Free Stock Analysis Report
 
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
 
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The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
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