US Equity Market News

Posted on | October 12, 2009 |

US equity markets looked ready to build on last week’s strong gains following better-than-expected third-quarter earnings at Royal Philips Electronics and an improved outlook by Black & Decker.

Third-quarter earnings optimism shot through the roof again today after Royal Philips Electronics, Europe’s biggest maker of consumer electronics, unexpectedly turned a third-quarter profit of €174 million, or 19 cents a share, substantially beating Bloomberg’s median analyst forecast for a loss of €44.7 million. Earnings were a staggering 200% higher than the prior year’s comparative of €57 million.

Philips shares soared 7.13% to €18.25 in Amsterdam, while its American Depositary Receipts climbed 7.6% to $27.02 a share.

Adding to the upbeat morale was power-tools maker Black & Decker, which raised its third-quarter earnings outlook thanks to a weaker US Dollar and an improvement in sales.

The manufacturer said it expects third-quarter earnings of 91 cents a share, up from a prior forecast of 35 cents to 45 cents a share. It also expects a 23% decline in third quarter sales, marginally better than an earlier forecast for a 24% drop.

Barclays initiated coverage with an ‘overweight’ rating on Black & Decker’s shares today; the broker said the company has ‘exposure to residential new construction, which should become a tailwind again in 2010.’ [1] Not surprisingly, shares of Black & Decker rallied 7% to $50.53 this afternoon.

By 3:30pm (London time), the Dow Jones Industrial Average was 60.53 points (+0.61%) higher at 9925.47, while the broader S&P 500 was 7.68 points (+0.72%) above its previous close at 1079.17.

US banks were predominantly higher this afternoon, with Citigroup up 3% to $4.77 despite Bloomberg reporting that Citi will have to pay a $600,000 fine. According to the financial news provider, Citigroup’s fine will settle a regulator’s claims that it inadequately supervised transactions that helped international customers avoid US taxes on stock dividends.

Meanwhile, shares in Bank of America climbed 0.60% to $17.60 and Wells Fargo edged 0.2% higher to $29.28.

Asset manager Blackstone advanced 8% to $16.05 on reports that the company is planning to sell up to 8 of its portfolio companies. The sales could be made via initial public offerings.

Elsewhere, shares of energy giant Exxon Mobil climbed 1.36% to $70.21, after the price of November crude oil climbed 2% to $73.25 a barrel. The Wall Street Journal also reported that oil and gas explorer CNOOC is in talks over a possible $4 billion rival bid against Exxon Mobil for a stake in a new oil discovery off West Africa.

Shares of Novellus Systems advanced 2.9% to $21.85 after it was picked as a ‘speculative buy’ by CNBC’s ‘Mad Money’ television show host Jim Cramer. Mr Cramer believes that the maker of semiconductor equipment stands to benefit from a rebound of the semiconductor market.

Polaris, the biggest US maker of snowmobiles and all-terrain vehicles, rose 3.5% to $43.80 after being upgraded from ‘hold’ to ‘buy’ at Citigroup, which cited ‘modestly’ improving sales. [2]

Biotechnology company Amgen also benefited from an update. Its shares rose 1% to $60.04 after UBS upped its rating on the company from ‘neutral to ‘buy’. It also lifted Amgen’s price target from $63 to $70 a share.

‘The pending approval and launch of denosumab should serve as a catalyst for (Amgen’s) shares, as we view this as the highest profile product launch in biotechnology over the next several years. In our model, we estimate total worldwide denosumab revenues will climb to $2.5 billion by 2013,’ the broker said. [3]

Defence company Oshkosh Corp. was also in the limelight, after announcing that it was awarded a $408.4 million contract for 923 additional blast-proof trucks. [4] Its shares gained 1.6% to $34.11

A report on Barron’s newspaper suggests buying healthcare stocks, as analysts see it as the best time to buy into the sector since the early 1990’s. The paper also flags up how Legget & Platt, the bed spring and store shelving maker, may suffer further share price declines if the economy fails to pick up as fast as the markets anticipate. It also suggests that shares in US Steel could also be vulnerable to falls ahead if US industrial output fails to rebound.

[1], [2], [4] Source: Bloomberg News (12 October 2009)
[3] Source: Market Watch (12 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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