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Dow 30 Stock Roundup: Boeing's $6.5B Air Force Contract, Pfizer to Buy Array BioPharma

Swarup Gupta

The index enjoyed another week of strong gains after the Federal Reserve indicated that a rate cut would likely occur next month. Hopes of a reduction in U.S.-China trade tensions also boosted stocks during the week. Oil stocks increased as chances of a U.S-Iran conflict increased. However, this factor also served to somewhat curb gains for market participants.

Last Week’s Performance

The index lost 0.1% last Friday following the weak performance of tech stocks on trade concerns. Moreover, China reported weak economic data for May, disappointing investors. China’s value-added industrial output rose 5.0% in May compared with 5.4% in April. This was the lowest growth rate in 17 years.

The index has gained 0.4% over last week. The market remained volatile as some economic data were tepid while some were rosy. Moreover, trade conflict with China continued with no signs of improvement. However, investors are expecting a rate cut or at least an indication that a rate cut will take place next month from the Fed.

The Dow This Week

The index gained 0.1% on Monday buoyed by the strong performance of technology stocks. However, trading volumes remained low as investors waited for the outcome of the crucial 2-day meeting of the Fed. The National Association of Home Builders’ index for the month of June declined 2 points to 64 from the previous month.

The index soared 1.4% on Tuesday after President Trump’s said he will meet his Chinese counterpart during the G-20 summit, which boosted investors’ confidence. Moreover, market participants were also expecting the Fed to indicate that a rate cut would take place next month.

The index increased 0.2% on Wednesday after the Fed kept the federal fund target rate unchanged while clearly indicating that the central bank might cut rates at least once in this year. The European Central Bank (ECB) strongly indicated that a near-term rate cut was likely a day earlier. Signs that two major central banks would pursue accommodative policies boosted investors’ confidence in equities.

The index gained 0.9% on Thursday as investors continued to be enthused by the prospect of a Fed rate cut next month. Shares of Exxon Mobil XOM and Chevron Corporation CVX gained 1.7% and 1.1%, respectively, after oil prices spiked on prospects of conflict between the United States and Iran.

Components Moving the Index

The Boeing Company ’s BA Defense Space and Security segment recently won a modification contract for providing Joint Direct Attack Munition (JDAM) tail kits, spares, repairs and technical services. The deal has been awarded by the Air Force Life Cycle Management Center, Hill Air Force Base, UT. Boeing has a Zacks Rank #3 (Hold).

The latest modification will extend the original contract for an additional five years. It also increased the contract ceiling by $6.5 billion to $10 billion. The deal also involves foreign military sales. Work related to the deal will be performed in St. Louis, MO, and is scheduled to be completed by Feb 28, 2025. (Read: Boeing Wins $6.5B Air Force Contract for JDAM Tail Kits)

Further, per Boeing’s latest Commercial Market Outlook (CMO), the world will need 44,040 new planes, worth $6.8 trillion, between 2019 and 2038. This estimate came 3.1% above previous year's projected demand of 42,730 jets, valued at $6.35 trillion, for the 2018-2037 period.

Of the total units, 44% of the demand will be for the replacement of old aircraft, while the rest will support future growth. (Read: Boeing Hikes 20-Year Jetliner Demand Forecast by 6.7% to $16T)

Pfizer, Inc. PFE announced a definitive agreement to buy small cancer drugmaker, Array BioPharma Inc. ARRY for $48 per share in cash for a total enterprise value of approximately $11.4 billion. Rank #3 Pfizer is paying a premium of 62% over Array BioPharma’s closing price of $29.59 on Friday.

The deal, if successful, will strengthen Pfizer’s cancer portfolio as Array BioPharma makes targeted small molecule drugs for treating cancer and other high-burden diseases.

Array BioPharma’s first commercial therapy, Braftovi plus Mektovi, approved as a treatment for BRAF-mutant melanoma, the deadliest form of skin cancer, was launched in July last year. The therapy has shown strong uptake since its launch. It generated almost $72 million in its first three commercial quarters and registered sequential growth of more than 50% in the quarter ending March 2019. (Read: Pfizer to Buy Array BioPharma, Broaden Cancer Portfolio)

Merck & Co., Inc. MRK announced that the FDA has granted accelerated approval for the label expansion of its PD-L1 inhibitor, Keytruda, for metastatic small cell lung cancer (“SCLC”) in third- or later-line setting. This approval marks the first-label expansion for Keytruda in the SCLC indication.

The approval was based on pooled data from SCLC cohorts of two clinical studies — KEYNOTE-158 (cohort G) and KEYNOTE-028 (cohort C1) — which evaluated the drug in SCLC patients whose disease has progressed after platinum-based chemotherapy and at least one other prior line of therapy.

Data demonstrated that treatment with Keytruda achieved an objective response rate of 19% and complete response rate of 2% in the patient population. The duration of response was six months or longer in 94% of the patients, 12 months or longer in 63% of patients and 18 months or more in 56% of patients. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Caterpillar Inc. CAT reported a rise of 6% in global retail sales for the three-month period ended May 2019 — the lowest so far this year. Nevertheless, Resource Industries, Construction Industries, and Energy & Transportation segments continue to report positive gains for the 23rd, 28th and 21st consecutive months, respectively. Caterpillar has a Zacks Rank #3.

In May, growth was primarily led by Latin America, which logged an increase of 16%, followed by North America, with growth of 15%. Sales in EAME dropped 5% and Asia Pacific witnessed a 4% dip. Barring North America and EAME, performances deteriorated across all regions compared with April. (Read: Caterpillar's May Sales Growth of 6% Hits Year's Lowest Point)

Johnson & Johnson ’s JNJ subsidiary Janssen announced top-line results from the phase III DISCOVER 1 and 2 studies on its IL-23 inhibitor, Tremfya/guselkumab. Both studies evaluated the safety and efficacy of Tremfya as compared to placebo for treating adult patients with active moderate to severe psoriatic arthritis (PsA). Johnson & Johnson has a Zacks Rank #3.

The studies met the primary endpoint of American College of Rheumatology 20% improvement while the safety profile was consistent with the previous programs on Tremfya/guselkumab.

Tremfya was first approved in the United States and the EU in 2017 for the treatment of moderate-to-severe plaque psoriasis.

Based on data from the two DISCOVER studies, Janssen will submit a regulatory filing to the FDA and the European Medicines Agency (EMA) for an approval to expand the label of Tremfya as a treatment for psoriatic arthritis, later this year. (Read: J&J's Tremfya Meets Goal in Psoriatic Arthritis Study)

Goldman Sachs GS is integrating four separate private-investment groups into a single unit. The restructuring is expected to take months. The news was first reported by The Wall Street Journal.

The new unit will comprise arms that invest in private companies, real estate and other hard-to-access deals, and is expected to reflect about $140 billion in assets. The move is aimed to make Zacks Rank #3 Goldman’s alternative division more appealing to investors and boost stock price.

Per the article, the new division’s core business will be a merchant-banking unit, which has about $100 billion invested in private assets. Notably, a special situations group will be joining the core with a portfolio of about $30 billion.

Also, Goldman’s strategic investing group that makes investments in financial technology startups, will be part of it. (Read: Goldman Sachs to Combine 4 Private-Investing Units)

Performance of the Top 10 Dow Companies

The table given below shows the price movement of the 10 largest components of the Dow, which is a price-weighted index, over the past five days and during the last six months.Over the past five trading days, the Dow has jumped 2.6%.

Next Week’s Outlook

Investors have been greatly encouraged by indications that the Fed could cut rates next month. Meanwhile, most economic reports remain strong, providing another cause for enthusiasm. But this could be counterproductive, since it lowers the chances of a rate cut. At the same time, geopolitical conflicts could spoil the markets’ party. Investors would be advised to remain cautious in the trading week ahead.

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Merck & Co., Inc. (MRK) : Free Stock Analysis Report

Pfizer Inc. (PFE) : Free Stock Analysis Report

Johnson & Johnson (JNJ) : Free Stock Analysis Report

The Boeing Company (BA) : Free Stock Analysis Report

The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report

Caterpillar Inc. (CAT) : Free Stock Analysis Report

Array BioPharma Inc. (ARRY) : Free Stock Analysis Report

Exxon Mobil Corporation (XOM) : Free Stock Analysis Report

Chevron Corporation (CVX) : Free Stock Analysis Report

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