Top US stocks: Deere & Co, Foot Locker and Applied Materials

Deere & Co, Foot Locker and Applied Materials all smash expectations, Illumina runs the risk of a large fine with its takeover of Grail, Adobe buys Frame.io, J&J unveils its new CEO, Spotify launches a new buyback, and Microsoft and Alibaba shares are also in play.

USA (1)

Deere & Co

Deere & Co breezed past expectations in the second quarter as it delivered growth from across the business and demand for its agricultural and construction equipment continued to improve, prompting it to raise its guidance for the third time this year.

Revenue rose 29% to $11.52 billion and came in well ahead of the $10.30 billion expected by analysts, while net income more than doubled to $1.66 billion from $811 million, also better than the $1.41 billion forecast. It said it managed to deliver a solid performance and serve its customers despite the supply-chain pressures that is plaguing several major industries.

Deere & Co said it is expecting annual net income to be between $5.7 to $5.9 billion, up from its previous target of $5.3 billion to $5.7 billion. If achieved, that would be a jump from just $2.75 billion in the last financial year and $3.25 billion the year before.

Foot Locker

Foot Locker surprised the markets with stronger growth than anticipated in the second quarter as demand for athletic footwear continues to strengthen and margins improve thanks to lower levels of promotional activity.

Revenue rose to $2.27 billion from $2.07 billion the year before, with comparable store sales rising 6.9%. That was much better than the $2.09 billion in revenue and 1.4% decline in sales forecast by Wall Street. Net income jumped to $430 million from just $45 million last year and was also comfortably ahead of the $110.7 million anticipated by analysts.

‘We exited the quarter with positive momentum and are cautiously optimistic about the outlook for the back-half of 2021. Recognizing we are still operating in an uncertain environment due to COVID-19, we continue to keep a close eye on the business, including temporary store closures and supply chain challenges, and we remain disciplined with expense management,’ said Foot Locker.

Applied Materials

Applied Materials performed much better than anticipated in the second quarter as the company benefited from a rise in demand for its chip factory tools as customers compete amid the global semiconductor shortage rattling businesses around the world.

The company reported record revenue of $6.2 billion, which jumped 41% from last year and breezed past the $5.93 billion expected by Wall Street. Net income more than doubled to $1.71 billion and also beat the $1.59 billion forecast, while adjusted EPS hit a new record of $1.90 and came in ahead of the $1.77 estimate.

Applied Materials said it is expecting fourth quarter sales of around $6.33 billion and adjusted EPS of $1.87 to $2.01. Analysts had forecast quarterly sales of $6.04 billion before the results were released.

Illumina

The European Commission has accused Illumina of breaching rules at the heart of the bloc’s merger control systems after closing its $8 billion acquisition of cancer detection test maker Grail before securing antitrust approval.

Illumina closed the deal on Wednesday and said it is holding the company separate from the rest of the business while the European Commission made its decision. But the Commission’s vice president Margrethe Vestager said Illumina had breached what is known as a standstill obligation that requires companies to wait for approval before completion – described as ‘the heart of our merger control system’.

She added that the Commission ‘take its possible breaches very seriously’. Rules outline that the maximum fine for breaching such conditions could be equal to as much as 10% of global revenue and action has been taken in similar circumstances before, such as against Altice when it closed its deal to buy PT Portugal too early back in 2015.

Adobe

Adobe has agreed to buy Frame.io, a cloud-based video collaboration platform that has over one million users from media and entertainment companies around the world.

Frame.io streamlines video production so numerous people can work together on one project underpinned by cloud-based workflows. This will be combined with Adobe’s creative software to help bolster its appeal. Adobe is paying $1.27 billion for Frame.io and the deal should close before the end of the year.

‘Whether it's the latest binge-worthy streaming series, a social media video that sparks a movement, or a corporate video that connects thousands of remote workers, video creation and consumption is experiencing tremendous growth. Video teams must produce an ever-increasing volume of content, and each video project requires various stakeholders, including video editors, producers, agencies, and clients,’ said Adobe.

Johnson & Johnson

Johnson & Johnson has revealed Joaquin Duato will become the company’s new chief executive early next year, replacing Alex Gorsky, who will become executive chairman.

The changes will come into effect on January 3, 2022 and will mark a new era for the company. Under Gorsky’s nine-year tenure at the top, J&J experienced huge growth but was also plagued by lawsuits over the opioid epidemic in the US and allegations over its talc-based products. Going forward, Duato will face the challenge of navigating the company through the rest of the pandemic.

Duato has been at J&J for over three decades and worked with Gorsky for 25 years. He is currently the vice chair of J&J’s executive committee and has taken more responsibility over the consumer business, supply chain and its health and wellness businesses since 2018.  

Spotify

Spotify this morning said it has launched a new $1 billion share buyback programme to demonstrate the confidence it has in its prospects.

The authorisation is for up to 10 million shares to be bought back for a maximum of $10 billion. This will be completed before April 21, 2026, with the timing and price to be determined at the time.

‘This announcement demonstrates our confidence in Spotify’s business and the growth opportunities we see over the long term,’ said chief financial officer Paul Vogel. ‘We believe this is an attractive use of capital, and based on the strength of our balance sheet, we continue to see ample opportunity to invest and grow our business.’

Tesla

Tesla is in focus following its AI Day event that saw the electric carmaker reveal insight into the company’s self-driving software and unveil plans to release a humanoid robot capable of doing boring, repetitive or dangerous work that humans don’t want to do.

Elon Musk said the robot could help transform the economy amid a shortage in labour and that he hopes it can be launched as early as next year and not be ‘super-expensive’.

He also said he is confident a full-driving system that is safer than humans can be developed using existing cameras and computers, adding that self-driving hardware will probably be introduced to the delayed Cybertruck in around a year. 

Microsoft

Microsoft shares will remain in play today after ending up yesterday to close at a new record high, driven by sweetening sentiment for the stock as demand for its tech and software continues to improve.

It announced yesterday that it will be increasing the cost of its Office 365 business subscription from the start of March 2022. Meanwhile, Wedbush and Mizuho both bumped up their price targets on the company to $350 from $325, which implies there is still legs in the current rally with Microsoft currently trading at just below $297.

Alibaba

Meanwhile, Alibaba shares are also in play after they sank 6.9% yesterday to close at its lowest level in two years, following other Chinese tech and education companies lower as fears over the regulatory clampdown in China grow. 

But brokers remain bullish on the stock and think it has been heavily oversold based on the current target price, which has not moved too much over the past three months and implies there is over 70% potential upside.

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