April 21, 2017

Stocks are mixed in early trading (Dow flat; SPX -.1%). Traders are exercising caution in front of the French election. Not surprisingly, utilities and gold miners are in the green. But for the most part, individual stocks are responding to their respective earnings announcements (see below). The VIX Index is up around 14.5 but VIX May futures are trading at 14.3. The fact that traders don’t expect a huge spike in volatility suggests a benign outcome for the French election. WTI crude oil is down around $50.50/barrel and most other commodities are down as well. Bonds are slightly higher in price, lower in yield. The 5-year and 10-year Treasury yields are currently at 1.75% and 2.22%, respectively. Those yields are hovering around 5-month lows. 

Verizon (VZ) reported first quarter results that disappointed investors. The wireless business lost 307,000 subscribers, resulting in a 7% decline in sales and a 10% decline in profits. The stock fell % yesterday. Verizon experienced a massive defection of customers in the first six weeks of 2017 and that forced management to begin offering unlimited data plans. In addition, the CEO said he is actively looking for M&A deals to reignite growth. Bloomberg reports Verizon is open to merger talks with a host of companies including Disney (DIS), Comcast (CMCSA) and CBS (CBS). The stock fell .5% yesterday in the wake of the announcement and is down another 1.5% today. 

Yesterday, we found out that Warren Buffett is voting all of his shares of Wells Fargo (WFC) stock in favor of re-electing the company’s board of directors. Mr. Buffett personally owns shares, and his company, Berkshire Hathaway, owns about 10% of Wells Fargo.   

Abbvie’s (ABBV) developmental drug verliparib—which sounds ridiculous—just failed two separate phase 3 clinical trials. This is a cancer drug, and the company was exploring whether it could be combined with chemotherapy to improve survival rates. The stock actually rose .6% yesterday after the announcement and it is up slightly today.

Danaher (DHR) reported better than expected earnings even as revenue fell short of forecasts. The company’s life sciences, diagnostics, environmental and dental equipment units all saw weaker sales compared with the prior quarter. Despite this, management reaffirmed its full-year 2017 guidance. So management expects improving trends in the back half of the year. The stock is down 6% from its all-time high. 

Sherwin Williams (SHW) reported a strong quarter, with 7% y/y sales growth (vs. 5.5% expected) and 44% earnings growth. The company’s paint stores did very well, with 7.5% same-store-sales growth, partly due to price increases. Management appears to have raised sales and earnings guidance for 2017. The stock rose 4% immediately after the announcement. 

BB&T Corp (BBT) narrowly beat Wall Street revenue & earnings expectations during the first quarter. The bank managed to grow revenue by 9% y/y. Earnings grew 7% y/y. The net-interest-margin improved slightly to 3.46% during the quarter. Management did a good job of controlling costs. But here’s what’s important—loan loss reserves fell almost 20%. That means the bank’s management team is seeing a very strong credit environment. If there was any bad news, it was that loan growth is slowing. The stock popped 2% after the announcement. 

Travelers (TRV) disappointed investors when it reported quarterly results. Revenue grow grew 4% from year-ago levels but profits fell 7% as weather related damage claims hurt results. Apparently, there were 400+ tornadoes during the first quarter—four times as many as usually strike the US. So the company’s catastrophe costs soared 9% from year-ago levels. The stock fell 1.5% yesterday after the announcement.

Visa (V) reported a strong quarter as total revenue soared 23% and total processed transactions shot up 42%. Management cited fairly healthy economies around the world and raised forward earnings guidance a bit. The stock is up modestly this morning, adding to yesterday’s gains.  

Honeywell (HON) is up 2.7% today after reporting first quarter results. Total sales were flat with year-ago levels, but “organic” revenue—excluding divestitures and acquisitions—rose a better than expected 2%. The company’s operating profit margin expanded by a full percentage point, and cashflow was significantly better than analysts anticipated. On an organic sales basis, the aerospace business was flat year-over-year; home & building technologies was up 3%; performance materials rose 5%; safety solutions rose 3%. Management noted improvement in the oil & gas sector. HON stock is up 2.5% this morning. 

A host of other companies have also reported very strong quarters. Foot Locker (FL) preannounced a better than expected quarter yesterday. Snap-on Tools (SNA) beat Wall Street estimates for both sales and earnings. 

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