Stocks Mixed Despite Better-Than-Expected GDP

July 30, 2014

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U.S. stocks were mixed as the Fed continued to wind down its monthly asset purchase program by another $10 billion.

The Fed noted that the economy rebounded in the second quarter despite significant under-utilization remaining in the labor market. As such, the Fed noted, it will maintain a policy of keeping money easy for the near term.

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability,” the Fed said in a press release.

The press release also stated, “The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat.”

Today's GDP report confirmed that the U.S. economy grew at a four percent rate in the second quarter, faster than the three percent expected pace in the quarter.

The Dow lost 0.19 percent, closing at 16,880.36.
The S&P 500 gained 0.01 percent, closing at 1,970.08.
The Nasdaq gained 0.45 percent, closing at 4,462.90.
Gold lost 0.15 percent, trading at $1,297.00 an ounce.
Oil lost 1.24 percent, trading at $99.72 a barrel.
Silver gained 0.06 percent, trading at $20.55 an ounce.

News of Note

MBA Mortgage Composite Index declined 2.2 percent after rising 2.4 percent last week.

MBA Mortgage Purchase Index rose 0.2 percent after rising 0.3 percent last week.

MBA Mortgage Refinance Index declined 4.0 percent after rising 4.0 percent last week.

July ADP Job Report declined to +218,000 from 281,000 in June. Analysts were expecting July's number to read +235,000.

Second Quarter GDP rose four percent, exceeding expectations of a three percent gain. First quarter GDP has been revised to -2.1 percent from -2.9 percent.

EIA Crude Inventories declined 3.7 million barrels, more than the decline of 1.4 million barrels expected.

EIA Gasoline Inventories rose 0.4 million barrels, falling short of the gain of 1.3 million barrels expected.

EIA Distillates Inventories rose 0.8 million barrels, falling short of the gain of 1.5 million barrels expected.

Analyst Upgrades and Downgrades of Note

Analysts at Citigroup maintained a Buy rating on Amgen (NASDAQ: AMGN) with a price target raised to $159 form a previous $155. Shares hit new 52-week highs of $131.24 before closing the day at $130.01, up 5.43 percent.

Analysts at Barclays maintained an Overweight rating on Buffalo Wild Wings (NASDAQ: BWLD) with a price target lowered to $187 from a previous $190. Shares lost 13.15 percent, closing at $145.17.

Analysts at Morgan Stanley downgraded CBS Outdoor (NASDAQ: CBSO) to Equal-weight from Overweight. Shares lost 2.36 percent, closing at $33.57.

Analysts at Tigress Financial upgraded Caterpillar (NYSE: CAT) to Neutral from Underperform. Shares lost 1.25 percent, closing at $103.38.

Analysts at Citigroup maintained a Neutral rating on Corning (NYSE: GLW) with a price target lowered to $21 from a previous $23. Shares lost 0.65 percent, closing at $19.87.

Analysts at Deutsche Bank downgraded Eaton (NYSE: ETN) to Hold from Buy. Analysts at JPMorgan also downgraded Eaton to Neutral from Overweight with a price target lowered to $75 from a previous $85. Also, analysts at Barclays maintained an Equal-weight rating on Eaton with a price target lowered to $79 from a previous $80. Shares lost 0.87 percent, closing at $69.90.

Analyst sat DA Davidson downgraded Level 3 Communications (NASDAQ: LVLT) to Neutral from Buy with an unchanged $50 price target. Shares lost 1.88 percent, closing at $45.31.

Analysts at Citigroup maintained a Neutral rating on McDonald's (NYSE: MCD) with a price target lowered to $103 from a previous $106. Shares gained 0.14 percent, closing at $95.95.

Analysts at Baird downgraded Michael Kors (NASDAQ: KORS) to Neutral from Outperform with a price target lowered to $98 from a previous $114. Shares lost 1.67 percent, closing at $82.27.

Analysts at Barclays maintained an Equal-weight rating on Panera Bread (NADSAQ: PNRA) with a price target lowered to $167 from a previous $174. Shares gained 3.51 percent, closing at $151.76.

Analysts at Bank of America upgraded Twitter (NYSE: TWTR) to Buy from Neutral. Also, analysts at UBS upgraded Twitter to Neutral from Sell while analysts at CRT Capital upgraded Twitter to Buy from Fairly Valued. Of note, analysts at Barclays maintained an Overweight rating on Twitter with a price target raised to $60 from a previous $46 while analysts at FBN Securities upgraded Twitter to Outperform from Sector Perform with a price target raised to $60 from a previous $50. Shares gained 19.98 percent, closing at $46.30.

Analysts at Barclays maintained an Overweight rating on Wynn Resorts (NASDAQ: WYNN) with a price target lowered to $232 from a previous $235. Shares gained 0.55 percent, closing at $218.61.

Equities-Specific News of Note

Telefonica (NYSE: TEF) announced it is in talks to acquire an un-named Mexican rival for as much as 3 billion euros. Shares gained 1.22 percent, closing at $16.63.

Carl Icahn lowered his stake in Family Dollar (NYSE: FDO) to 6.03 percent from 9.39 percent. Family Dollar CEO Howard Levine regained the title as the largest shareholder with an 8.17 percent stake. Shares gained 0.87 percent, closing at $75.15.

AstraZeneca (NYSE: AZN) has acquired the rights to lung drugs developed by Almirall for $875 million and up to $1.2 billion in future considerations. Shares gained 0.11 percent, closing at $73.19.

Pacific Gas & Electric (NYSE: PCG) confirmed that it faces a possible $1.1 billion fine over the San Bruno blast. Shares lost 1.93 percent, closing at $45.70.

Warner Brothers (NYSE: TWX) created a Harry Potter Global Franchise Development division to create TV, film, theme parks and other projects revolving the Harry Potter franchise. Shares gained 0.76 percent, closing at $84.49.

JinkoSolar (NYSE: JKS) received a total of $225 million investment for downstream projects from the China Development Bank International, Macquarie Greater China and New Horizon Capital. Shares lost 1.20 percent, closing at $26.25.

Pfizer (NYSE: PFE) has agreed to acquire Baxter International's (NYSE: BAX) vaccine business for $635 million. Shares of Pfizer lost 0.71 percent, closing at $29.26 while shares of Baxter International lost 0.33 percent, closing at $76.09.

Exelon (NYSE: EXC) has agreed to acquire the retail electricity division of Integrys Energy (NYSE: TEG) for $60 million. Shares of Exelon lost 1.46 percent, closing at $31.01 while shares of Integrys Energy lost 2.16 percent, closing at $67.54.

The rating agency Moody's predicted that RadioShack (NYSE: RSH) will run out of cash by its third fiscal quarter in 2015. Shares lost 4.41 percent, closing at $0.65.

Winners of Note

This morning, SodaStream (NASDAQ: SODA) reported its second quarter results. The company announced an EPS of $0.43, beating the consensus estimate of $0.31. Revenue of $141.20 million beat the consensus estimate of $140.56 million. Net income for the quarter fell to $9.2 million from $12.9 million in the same quarter a year ago as revenue in the Americas declined by 14 percent to $40.9 million. The company did see its revenues grow by 14 percent in Western Europe to $77.7 million and by 13 percent in Asia-Pacific to $12.2 million. Consumables revenue rose 15 percent to $90.8 million while soda maker kits saw its revenues decline by eight percent to $49.9 million. Gross margin declined by 380 bps to 50.5 percent due to an unfavorable sales mix and fluctuations in currencies. SodaStream did note that its soda maker volume is still under pressure in the U.S. due to excess holiday season inventories. The company issued guidance and sees its revenue growing by five percent over 2013 levels of $562.7 million. The company also lowered its EBITDA growth forecasts to five percent from a previous 11 percent. Shares gained 10.04 percent, closing at $32.76.

NQ Mobile (NYSE: NQ) disclosed that received a non-binding proposal from Bison Capital, a Beijing based investment firm to acquire the company for $9.80 per share. The company said that it may hire independent advisers to advise management on the deal. Shares gained 7.83 percent, closing at $7.44.

CME Group (NYSE: CME) has agreed to acquire GFI Group (NASDAQ: GFIG) for $4.55 per share and will immediately sell it's wholesale brokerage and clearing business back to a group led by GFI Management. CME will retain GFI Group's Trayport which provides trading software in the European energy markets as well as FENICS, a provider of price discovery, analytics, risk-management and workflow connectivity services for over the counter foreign exchange options markets. Shares of CME Group gained 0.44 percent, closing at $75.83 while shares of GFI Group surged to new 52-week highs of $4.50 before closing the day at $4.47, up 43.73 percent.

The FDA's Center for Drug Evaluation and Research stated that the agency is exploring potential pathways to approve new drugs that could be used to treat Duchenne muscular dystrophy. Specifically, Sarepta Therapeutics' (NASDAQ: SRPT) eteplirsen was mentioned as potentially being placed in an accelerated approval program. Shares gained 12.79 percent, closing at $22.93.

Decliners of Note

This morning, Goodyear Tire & Rubber (NASDAQ: GT) reported its second quarter results. The company announced an EPS of $0.80, beating the consensus estimate of $0.79. Revenue of $4.66 billion missed the consensus estimate of $4.75 billion. Net income for the quarter rose to $213 from $181 million in the same quarter a year ago as tire unit volumes rose three percent from a year ago to 40.6 million and tire shipments were up six percent with growth seen in all four regions. The North American region saw its sales decline to $2.04 billion from $2.20 billion a year ago but the segment's operating income improved by two percent to $208 million. Latin America saw its sales decline to $489 million from $531 million a year ago while the segment's operating income shrunk to $59 million from $82 million and its operating margin fell to 12.1 percent from 15.4 percent. The company noted its performance in the region was negatively affected by the operating environment in Venezuela, inflationary cost increases, lower original equipment volume and plant expansion costs in Brazil. Shares lost 7.96 percent, closing at $25.45.

Penn West (NYSE: PWE) reported details of several accounting irregularities and announced it will review its financial statements going back as far as four and a half years. The company noted that its historical financial documents for the period may not be reliable. As a result, the company may be forced to lower its budget and royalty expense expectations in addition to raising its operating cost for fiscal 2014. Shares lost 14.21 percent, closing at $7.85.

Earnings of Note

This morning, Sprint (NYSE: S) reported its first quarter results. The company announced an EPS of $0.01, beating the consensus estimate of -$0.04. Revenue of $8.79 billion beat the consensus estimate of $8.69 billion. Net income for the quarter rose to $23 million from a net loss of $151 million in the same quarter a year ago, making the company's best performance in almost seven years when excluding non-cash transaction-related impacts from last year. Wireless service revenue fell four percent from a year ago to $7.09 billion while postpaid churn fell to 2.05 percent from the previous quarter but rose from 1.83 percent a year ago. In all, the Sprint platform lost 181,000 postpaid subscribers and 542,000 prepaid subscribers, compared to losses of 231,000 and 364,000 a year ago. The company reiterated its full-year EBITDA guidance of $6.7 billion to $6.9 billion while capex guidance has been lowered to $1 billion to just under $7 billion. Shares lost 3.00 percent, closing at $7.76.

This morning, Valero (NYSE: VLO) reported its second quarter results. The company announced an EPS of $1.22, beating the consensus estimate of $1.21. Revenue of $34.91 billion beat the consensus estimate of $29.16 billion. Net income for the quarter rose to $593 million from $465 million in the same quarter a year ago as the company's refining segment reported higher volumes and operating income. During the quarter, Valero's refining throughput volumes rose on average 115,000 barrels per day to 2.7 million barrels due to less turnaround activity and higher utilization rates. Refining operating income increased 18 percent from a year ago to $1.08 billion while the company's ethanol segment saw its operating income almost double to $187 million due to lower corn costs. The company noted that it sees its 2014 capex being $3 billion, including $870 million for logistics investments. Shares gained 0.42 percent, closing at $50.06.

This morning, Hess (NYSE: HES) reported its second quarter results. The company announced an EPS of $1.38, beating the consensus estimate of $1.16. Revenue of $3.60 billion beat the consensus estimate of $2.54 billion. Net income for the quarter fell to $931 million from $1.431 billion in the same quarter a year ago as oil and gas production fell to 319,000 barrels of oil equivalent per day from 341,000 barrels of oil equivalent in the same quarter a year ago. The company noted that oil and gas production in the Bakken rose 25 percent from a year ago to 80,000 barrels of oil equivalent per day, while well costs fell by 12 percent to an average of $7.4 million per operated well. Hess noted that it is confident that it will deliver five percent to eight percent annual production growth. Finally, the company announced that it will form an MLP consisting of its pipeline and storage assets in North Dakota's Bakken oil shale field and will file with the SEC in the fourth quarter. Shares hit new 52-week highs of $104.50 before closing the day at $101.05, up 1.64 percent.

After the market closed, Whole Foods Market (NASDAQ: WFM) reported its third quarter results. The company announced an EPS of $0.41, beating the consensus estimate of $0.39. Revenue of $3.40 billion beat the consensus estimate of $3.39 billion. Shares were trading lower by 5.16 percent at $37.09 following the earnings report.

After the market closed, Yelp (NYSE: YELP) reported its second quarter results. The company announced an EPS of -$0.04, beating the consensus estimate of -$0.06. Revenue of $76.40 million beat the consensus estimate of $75.06 million. Shares were trading higher by 5.60 percent at $79.83 following the earnings report.

After the market closed, MetLife (NYSE: MET) reported its second quarter results. The company announced an EPS of $1.39, missing the consensus estimate of $1.41. Revenue of $17.80 billion beat the consensus estimate of $17.54 billion. Shares were trading unchanged at $54.44 following the earnings report.

Quote of the Day

“When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” – The Federal Reserve in a press release.

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