Weekly Comment

October 27, 2014

Overview

While Ebola fears continued to dominate the news and a terrorist attack in Ottawa was unsettling, reports of better-than-expected third quarter corporate profits bolstered the market and the major averages recovered from the previous week's beating: the Dow Jones Industrial Average rose 425.00 points (2.59 percent to return to the plus side for the year); the S&P 500 Index advanced 77.82 points (4.12 percent); and the Nasdaq Composite gained 332.07 points (3.24 percent). Overseas economic data, while not particularly good, was not as bad as feared; China's October flash HSBC/Markit purchasing managers' index (PMI) was 50.4, up slightly from 50.2 in the previous month, and Markit reported that its October euro-zone PMI also inched up, going from 52.0 to 52.2.  China's growth still seems on a slowing track and Europe will still need additional central bank stimulus to avoid a full-blown recession (if that is possible) but, for now, those issues appear to have placed on the back burned by investors.  


In the News

NCR (NCR-26.39) No Sale

            NCR Corp. reported third quarter results on Thursday (pre-announced on Monday). The maker of ATMs and self-service checkout machines had adjusted EPS of $0.67 ($0.09 after one-time gains and costs), down from $0.76 in the year-earlier period and $0.03 below the consensus estimate. More importantly, the Company revised its EPS guidance for the fourth quarter from $1.75-$1.85 to $1.30-$1.40. Chairman and CEO Bill Nuti noted that retail industry conditions worsened in the third quarter, resulting in weak sales at established stores. He also highlighted other negative factors in the quarter, including more cautious retail spending by customers, ongoing data security concerns and consolidation in the retail industry. CEO Nuti stated that business was challenged by customers spending more cautiously than anticipated and further delaying solution rollouts and that these trends, along with difficult global macroeconomic conditions and foreign currency headwinds, which had significant impacts on  performance in the third quarter, are expected  to continue to impact its business in the fourth quarter. The stock was down 12 percent for the week.

Yelp Inc. (Yelp-59.42) Help!

            Yelp Inc., the operator of consumer review website Yelp.com, reported EPS of $0.05, in the third quarter compared with a loss of $0.04 per share in the year-earlier period, on revenue of  102.5 million, up from $61.2 million. The consensus estimates had been for EPS of $0.03 on revenue of $99 million. The Company's aggressive promotion of its cost-per-click (CPC) advertising model has helped it draw more advertising dollars. A business subscribing to Yelp's CPC product pays only when a user clicks on the advertising. However, the Company forecast revenue of $107 million to $108 million for the fourth-quarter, a disappointment relative to the prior average estimate of $111 million. Although analysts generally lowered their price targets for the stock, buy ratings were maintained. Nonetheless, investors focused on the fourth-quarter guidance, sending the stock down 12 percent for the week. 


The Week Ahead

This week's economic releases are expected to continue to portray a growing economy. Investors will be watching to see if third quarter earnings reports continue their favorable trend; thus far gains are trending at about 7 percent as compared to the 4.6 percent growth forecast by consensus estimates when the reporting season began. Treasury auctions scheduled for this week are on: Monday: $24 billion three-month bills and $$30 billion six-month bills; Tuesday: $29 billion two-year notes; Wednesday: $35 billion five-year notes and $15 billion two-year floating rate notes; and Thursday: $29 billion seven-year notes (when-issued yield as Friday was 1.938 percent versus 2.235 percent for the last auction).  


Economic Indicators       

  Expected

 Last Period

Tues., Oct. 27

Sept. Durable Goods

+0.7 percent

-18.2 percent

Oct. Consumer Confidence

87.0

86.0

Thurs., Oct. 29

Q3 GDP (advanced)

+3.0 percent

+4.6 percent

Fri., Oct. 30

Sept. Personal Income

+0.3 percent

+0.3 percent

Sept. Consumption

+0.1 percent

+0.5 percent

Oct. Purchasing Mgrs Ind. (final)

60.5

60.5

Oct. Michigan Sentiment (final)

86.4

86.4

Source: Bloomberg/FactSet

Selected Corporate Earnings

Period

Estimate

Year Earlier

Mon., Oct. 27

Allergan

3Q

$1.68

$1.23

Amgen

3Q

$2.11

$1.94

Merck

3Q

$0.88

$0.92

Tues., Oct. 28

Aflac

3Q

$1.43

$1.47

Anadarko Petroleum

3Q

$1.27

$1.13

DuPont

3Q

$0.53

$0.45

Express Scripts Holding

3Q

$1.29

$1.08

Facebook

3Q

$0.40

$0.25

Freeport-McMoRan

3Q

$0.60

$0.78

Gilead Sciences

3Q

$1.92

$0.52

McKesson

2Q

$2.73

$2.27

Pfizer

3Q

$0.55

$0.58

Wed., Oct. 29

Automatic Data Proc.

1Q

$0.60

$0.55

ConocoPhillips

3Q

$1.20

$1.47

Exelon

3Q

$0.73

$0.78

MetLife

3Q

$1.38

$1.34

Phillips 66

3Q

$1.75

$0.87

Visa

4Q

$2.10

$1.83

WellPoint

3Q

$2.27

$2.10

Thur., Oct. 30

MasterCard

3Q

$0.78

$0.73

Newmont Mining

3Q

$0.16

$0.46

National Oilwell Varco

3Q

$1.53

$1.34

Public Storage

3Q

$2.06

$1.92

Starbucks

4Q

$0.74

$0.63

The Mosaic Company

3Q

$0.60

$0.51

Time Warner Cable

3Q

$1.90

$1.64

Fri., Oct. 31

Chevron

3Q

$2.56

$2.57

Exxon Mobil

3Q

$1.72

$1.79

NextEra Energy

3Q

$1.55

$1.43

Source: Thomson First Call










This section is to edit the content under the navigation and will be seen under the navigation when the site is live