Positive Reports Boost US Shares: Financial Spread Betting News

Posted on | November 13, 2009 |

Wall Street was trading in positive territory this afternoon following the release of solid quarterly earnings from Walt Disney and Abercrombie & Fitch.

Investors cheered after Walt Disney, the world’s biggest media company, reported a bigger-than-expected 18% increase in fourth-quarter profit of $895 million. After excluding certain one-off items, profits were 12% higher than Bloomberg’s median analyst estimates at 46 cents a share.

Sales were up by 4.5% to $9.87 billion, helped by higher fees from pay TV operators that carry its ESPN sports programmes. Sales were also ahead of Bloomberg’s $9.3 billion median forecast. Walt Disney’s shares rallied 4% to $30.22 after reporting its figures.

JP Morgan’s Imran Khan raised his fiscal 2010 earnings target for Walt Disney to $1.86 a share from $1.78, and lifted his price target to $28 from $22. The revision reflects ‘an improving ad outlook, which will be somewhat offset by challenging studio results and pension and post-retirement costs.’

Khan maintained his underweight rating on the shares while Doug Mitchelson of Deutsche Bank Securites reiterated his ‘buy’ rating on Walt Disney, saying strong income growth from the cable networks, ‘well-positioned’ international businesses, and ‘excellent’ governance create more room for the shares to rise. [1]

Teen-clothing retailer Abercrombie & Fitch (ANF) was also in the spotlight today. It shares rallied over 6% to $39, after reporting a third-quarter adjusted profit of 30 cents per share, 50% higher than Bloomberg’s median estimates. Goldman Sachs also added the US retailer to its ‘conviction buy’ list, citing the potential for international sales growth.

‘While the international profit opportunity has been part of the bull case for some time, we see it as a bigger catalyst for shares in the coming quarters as the pace of openings is accelerating notably,’ said Michelle Tan of Goldman Sachs. ‘We expect ANF could accelerate their pace of international openings in 2011 and beyond.’ [2]

Not all retailers fared well; Nordstrom plunged 4.8% to $32.86 after predicting a drop in full-year same-store sales and disappointing gross margins. In the meantime, Nordstrom posted a net profit of $83 million, or 38 cents per share, in the third quarter. This was 17% higher than last year’s comparative but slightly below Reuters’ expectations. Third-quarter revenues rose 3.5% to $1.87 billion.

Elsewhere, Google made the headlines after the Swiss Federal Data Protection and Information Commissioner said it is taking the internet advertising giant to court over its Street View service, which had failed to protect people’s privacy. Google’s share price edged 0.40% higher to $570.06 a share, nevertheless.

By 3.30pm (London time) the Dow Jones Industrial Average was 40.43 points (+0.40%) above its previous close at 10237.9, while the broader S&P 500 was 2.27 points (+0.21%) higher at 1089.51. The Nasdaq, meanwhile, gained 6.92 points (+0.39%) to 1780.06.

In economic news, an official government report revealed that the US trade deficit widened the most in a decade in September, as a result of rising demand for imported oil and automobiles.

The trade gap grew by a wider-than-expected 18% to $36.5 billion, as imports surged 5.8% to a 16-year high of $168.4 billion. This outpaced exports, which grew by only 2.9% to $132 billion. According to the report, sales of civilian aircrafts, industrial machines and petroleum products contributed to the rise in exports.

Although trade deficits are frowned upon, it could be interpreted as a positive indicator this time around because the surge in imports suggests that US domestic demand is recovering.

In contrast, US consumer confidence data surprisingly fell in November, highlighting the fact that the American economy still faces significant hurdles ahead.

The Reuters / University of Michigan preliminary index of consumer sentiment declined to 66 from 70.6 in October – Bloomberg’s median estimates were pointing to a rise to 71. The drop in consumer confidence suggests that spending in the upcoming holiday season may be subdued – the US jobless rate is after all at a 26-year high.

[1] Source: Market Watch (13 November 2009)
[2] Source: Bloomberg News (13 November 2009)

By Anthony Grech, Research Analyst, IG Index.

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