Friday, July 22, 2011
Growing optimism about the Greek debt situation and the improving odds of a debt ceiling deal in Washington has helped the market appreciate the solid corporate profitability picture coming out of the ongoing earnings season. As a result, stocks have moved closer to the April highs. This momentum should sustain itself today given solid earnings reports from a number of key companies.
We had solid numbers from General Electric (GE), with adjusted earnings and revenue coming ahead of expectations, with international growth the key driver. McDonald’s (MCD) served an EPS and revenue beat, on the back of better than expected comp sales. Verizon (VZ) also reported better than expected results on strong subscriber growth after the carrier had its first full quarter with the iPhone.
We also got a solid top- and bottom-line beat from Schlumberger (SLB), with momentum in the North American oil patch providing most of the boost. Microsoft (MSFT) and Advanced Micro Devices (AMD) came ahead of expectations after the close on Thursday.
Unlike GE, we got mixed results from two other industrial standard bearers. Caterpillar (CAT) missed on EPS, as better than expected top-line gains were offset by increasing costs. After having grown used to positive surrprises from Caterpillar quarter after quarter, the company’s miss today is a major disappointment. Honeywell (HON) beat on EPS, but came a shade lighter on revenue.
The Caterpillar and Honeywell misses notwithstanding, the impressive earnings reports from a host of key companies should help sustain the positive momentum in the market today. But some profit taking after the solid gains of the last few sessions can not be ruled out ahead of the weekend.
Sheraz Mian
Director of Research
Zacks Investment Research
