Bloomberg News

U.S. Stocks Rise Amid Better-Than-Forecast Earnings

April 24, 2012

Specialists on the floor of the New York Stock Exchange on April 23, 2012. Photographer: Richard Drew/AP Photo

Specialists on the floor of the New York Stock Exchange on April 23, 2012. Photographer: Richard Drew/AP Photo

U.S. stocks advanced, following yesterday’s decline in the Standard & Poor’s 500 Index, amid better-than-estimated earnings at companies from AT&T Inc. to 3M (MMM:US) Co. and as data indicated the housing market is stabilizing.

AT&T, the largest U.S. telephone company, and 3M, the maker of Post-it Notes, rose at least 1.5 percent. International Business Machines Corp. added 0.7 percent after the company boosted its buyback plan by $7 billion and raised its dividend. Juniper Networks Inc. increased 7.2 percent as revenue beat analysts’ projections. Apple Inc. (AAPL:US) jumped 7.5 percent at 5 p.m. New York time as profit almost doubled last quarter.

The S&P 500 rose 0.4 percent to 1,371.97 at 4 p.m. New York time. The Dow Jones Industrial Average added 74.39 points, or 0.6 percent, to 13,001.56. The Nasdaq Composite Index lost 0.3 percent to 2,961.60. About 6.2 billion shares changed hands on U.S. exchanges, or 7.8 percent below the three-month average.

“Stocks have room to move higher,” said David Kelly, who helps oversee about $394 billion as chief market strategist at JPMorgan Funds in New York. “Earnings are healthy. The bar has been lowered so far that you can just walk over it. Housing is on the mend. A sign of a market top is when people are exuberant. There’s no exuberance as witnessed yesterday.”

Equities rebounded from yesterday’s slump, extending this year’s rally in the S&P 500 to 9.1 percent. Earnings per share beat forecasts at 82 percent of S&P 500 companies that reported results since April 10, according to data compiled by Bloomberg. Per-share profits grew 3.3 percent in the first-quarter, Bloomberg data show. That’s up from the 0.8 percent growth projection before the earnings season started.

Economic Data

Economic optimism helped fuel gains today as new home sales data indicated that cheaper borrowing costs are helping stabilize the real estate market. Federal Open Market Committee members began a two-day meeting today and tomorrow will probably repeat their plan to keep the benchmark interest rate low at least through late 2014, economists say.

A gauge of homebuilders in S&P indexes jumped 2.4 percent. D.R. Horton Inc., the largest U.S. homebuilder by volume, rose 3.2 percent to $15.54. KB Home added 4.5 percent to $7.91.

Phone shares had the biggest gain among 10 S&P 500 groups, rallying 2.8 percent. AT&T (T:US) added 3.6 percent to $31.72. Earnings beat estimates on lower smartphone upgrade costs and an increase in wireless data sales related to Apple’s iPad.

3M increased 1.6 percent to $88.49. The U.S. market drove sales at the industrial and transportation (MMM:US) unit, the largest division at the St. Paul, Minnesota-based company.

IBM’s Dividend

IBM (IBM:US) gained 0.7 percent to $200. The quarterly payout will rise 10 cents to 85 cents a share. IBM had $5.7 billion remaining from a previous buyback plan, bringing the total available for repurchases to $12.7 billion.

Technology companies are approaching consumer staples as the largest dividend payers, according data compiled by Howard Silverblatt, S&P’s New York-based senior index analyst. The technology group contributes about 14 percent of the S&P 500’s dividends, up from 5.1 percent in 2004. Consumer staples companies account for almost 15 percent.

Apple gained 7.5 percent to $602.25 after the close of regular trading. Net income in the fiscal second quarter climbed to $11.6 billion, or $12.30 a share, as revenue increased 59 percent to $39.2 billion. Analysts had predicted profit of $10.02 a share on revenue of $36.9 billion.

Chief Executive Officer Tim Cook is increasingly relying on regions outside the U.S. for sales (AAPL:US) growth. That helped make up for sales declines from the previous quarter at the top U.S. mobile-phone carriers, Verizon Wireless and AT&T. It also quelled speculation that Apple’s growth pace may slacken.

‘Fast-Growing Region’

“China has been a very fast-growing region for them,” said Abhey Lamba, an analyst at Mizuho Securities USA Inc. in New York. “There’s more disposable income, strong demand for high-end products and their penetration has been very low in that market. They have been highlighting that region as one of their focus areas.”

The company’s shares slumped 2 percent to $560.28 today, dropping for a fifth straight day. Motorola Mobility Holdings Inc. won a partial U.S. International Trade Commission judge’s ruling in its bid to block imports of Apple’s devices including the iPhone and iPad tablet computer.

Juniper (JNPR:US) Networks climbed 7.2 percent to $21.63. Results suggest that demand from cable companies and other Internet service providers for Juniper’s switches and routers may be improving, said Brian Marshall, an analyst at ISI Group.

Wal-Mart Slumps

Wal-Mart Stores Inc. (WMT:US) slumped 3 percent to $57.77. The shares dropped 7.5 percent in two days, the most since January 2009. The retailer is investigating allegations that executives in Mexico paid more than $24 million in bribes to speed expansion there. The company also is the subject of a U.S. Justice Department criminal investigation, a person familiar with the probe said yesterday.

Big Lots Inc. (BIG:US) plunged 24 percent, the biggest decline in the S&P 500, to $34.71. The discontinued-merchandise retailer with more than 1,400 U.S. stores reduced its fiscal first- quarter sales forecast (BIG:US) amid lower demand for electronics.

Netflix Inc. (NFLX:US) tumbled 14 percent to $87.68. The world’s largest video-subscription service projected a slowdown in growth of U.S. streaming customers.

Coach Inc. (COH:US) lost 4.3 percent to $71.87. The largest U.S. luxury handbag maker reported fiscal third-quarter sales that beat analysts’ estimates by the smallest margin in 11 quarters.

Slower Growth

Companies’ failure to boost forecasts for future profits and sales will weigh on the S&P 500 as investors project slower growth, according to Barclays Plc’s Barry Knapp.

Knapp predicts the S&P 500 will end the year at 1,330, 4 percent below the average forecast of 11 strategists surveyed by Bloomberg as of April 16. He forecasts combined profit by S&P 500 companies will be $103 a share this year. Analysts that cover companies in the index estimate earnings of $104.86 in 2012 and $118.06 in 2013, according to data compiled by Bloomberg.

“Guidance is not moving higher and as a result, even where companies are beating estimates, the stocks still aren’t going up,” Knapp, the New York-based head of equity strategy at Barclays, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “If the guidance doesn’t move up, if the revenue’s missed, really what you’re discounting in terms of the growth outlook is not all that great.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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Companies Mentioned

  • MMM
    (3M Co)
    • $160.6 USD
    • 1.55
    • 0.97%
  • AAPL
    (Apple Inc)
    • $109.41 USD
    • 2.67
    • 2.44%
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