Stocks look set to rebound this morning amidst solid earnings from bellwethers like Caterpillar (CAT) and 3M (MMM), while WTI crude oil, the U.S. benchmark, traded over $66 a barrel. US jobless claims rose to 233,000, better than the 240,000 economists had predicted, while the European Central Bank left monetary policy unchanged but yields on the 10-year German bund are rising as Mario Dragihi appears to be leaning towards ending quantitative easing.
S&P 500 futures have advanced 0.3%, while Dow Jones Industrial Average futures have risen 111 points, or 0.4%. Nasdaq Composite futures have gained 0.7%. WTI Crude has climbed 1.3% to $66.46, while the euro has gained 1% to $1.253 versus the U.S. dollar.
If you’re looking for a driver of the stock rally, look no further than earnings. Yes, some companies have disappointed, but for the most part the numbers have been quite good. Credit Suisse strategist Jonathan Golub notes that with just more than a quarter of the S&P 500 reporting, 75% have topped analyst expectations by an average of 4.1%. Companies are on pace to grow by 14.5%, he says, while earnings guidance for 2018 has been revised up 8.4%, largely because of lower taxes.
But it’s not just taxes. Marketfield’s Michael Shaoul contends that earnings are confirming what economic data has been telling us for a while now: “Demand accelerated meaningfully over the course of 2017 and in most sectors has not yet been met by a sufficient increase in supply,” he says.
And that could keep this rally going for a while longer.
Caterpillar (CAT) is up 3.7% to $174.50 this morning, following its strong fourth-quarter earnings and full-year forecast. The machinery giant said it earned $2.16 a share, on revenue that rose 34.7% year over year to $12.9 billion. Analysts were looking for earnings of $1.78 a share on revenue of $12.01 billion. For the full year, Caterpillar sees earnings of $8.25 to $9.25, easily ahead of the $8.29 consensus. Caterpillar was the second-best performing stock in the Dow in 2017, and plenty of analysts see more gains to come.
3M (MMM) is up 3.3% to $255.90 after its upbeat fourth-quarter earnings report and guidance. The industrial giant said it earned $2.10 a share on revenue that rose 9% year over year to $7.99 billion. Analysts expected earnings of $2.03 on revenue of $7.85 billion. For the full year, 3M guided for earnings of $10.20 to $10.70 a share, up from $9.60 to $10 previously, and above the $9.90 consensus. 3M was one of the Dow’s best performers in 2017.
Kroger (KR) is up 4.1% to $30.69 on news that it’s partnered with Alibaba (BABA) in a move to combat Amazon (AMZN). Although there are few details at the moment, Kroger senior executives met with Alibaba management in China, and have already inked a deal spanning online and off-line sales. After Amazon’s purchase of Whole Foods and its first cashier-free store, grocers have been worried that it would take over the supermarket space, but the the grocery apocalypse has yet to happen as the industry hasn’t changed as much as bears feared.
CenturyLink (CTL) is up 3.4% to $17.98 in earning trading following an upgrade to Outperform at RBC Capital Markets. CenturyLink has had a lot of ups and downs in the past year, as traditional wireline stocks struggle to keep pace. The stock is up about 4% this year, but has still fallen 33.3% in the past 12 months.
Celgene (CELG) is up 1.5% to $104.69 following its better-than-expected fourth-quarter earnings and mixed guidance. The biotech firm said it earned $2 a share, a penny better than analysts’ expectations, on revenue that rose 16.9% year over year to $3.48 billion, edging past the $3.46 consensus. It said sales of its blockbuster drug Revlimid rose 21% in the quarter. For the full year, Celgene expects to earn $8.70 to $8.90 a share, on revenue of $14.4 billion to $14.8 billion. Analysts were looking for earnings of $8.65 on revenue of $14.77 billion. Celgene has been on a buying spree this year, with its Juno acquisition and its purchase of Impact Biomedicines.
Biogen (BIIB) is up 3.4% to $358.15 after delivering a mixed fourth-quarter earnings report and strong guidance. Biogen said it earned $5.26 a share, on revenue that rose 15.1% year over year to $3.31 billion. Analysts were looking for earnings of $5.45 on revenue of $3.08 billion. For the full year, the biotech giant said it expects to earn $24.20 to $25.20 a share, above the $24.13 consensus. It sees revenues of $12.17 billion to $13 billion, compared to the $12.68 billion average analyst forecast. — Teresa Rivas
Last week, Lowe’s (LOW) agreed to add two board members put forward by activist investor DE Shaw to help close the gap with competitor Home Depot (HD). But is Home Depot the real winner?
Yes, that sounds odd. After all, shares of Lowe’s gained 1.5% on Friday, after the news broke. And analysts, for the most part, see Lowe’s as the ultimate beneficiary.”All in, outside thinking and favorable macro create solid backdrop for a continued positive narrative around LOW,” wrote Baird analyst Peter Benedict and team in a note on Jan. 23.
Not everyone agrees. In a note released yesterday, Credit Suisse analyst Seth Sigman wrote that one of the big questions is how competition between the two retailers plays out this year. Lowe’s could, of course, “address some of that productivity gap, at the expense of HD.” But it’s also possible that changes of Lowe’s could cause enough disruption to be a positive for Home Depot. “While there is plenty of share elsewhere, we believe that this will be a major focus for investors in this group in 2018,” Sigman writes. He reiterated an Outperform rating on Home Depot and raised his price target from $183 to $202 following meetings with management. — T.R.
Dropbox has confidentially filed to go public sometime in 2018, prompting some in Silicon Valley to effusively hail it as the offering to break the tech IPO logjam.
Stop us if you’ve heard this before. It didn’t happen despite wishful thinking in 2017 and may not in 2018, as our feature in this week’s issue of Barron’s cautions:
There were exceptions last year. Software company Appian (APPN) hit the ground running in May, and never looked back. In its case, it helps when you face little competition in the $150 billion global market for customized applications.
“We’ve addressed the biggest white space in software,” Appian Chief Executive Officer Matt Calkins said in an interview late Wednesday. “We are the framework to write industrial-strength software applications.”
Appian’s technology, for instance, let the Dallas/Fort Worth International Airport crank out 40 applications in 18 months – from back-office human resource solutions to a tracking system of birds in and around the sprawling airport. The speed with which Appian allows large organizations to customize software is its laser-like focus, Calkins says.
Its technology, profitable business model and corporate customers – Sprint (S), University of South Florida and Ryder System (R) are among its roster – have made Appian the type of company that investors buy into. — Jon Swartz