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Stock Market Today: Futures Higher as Aetna, Merck Top Expectations

NEW YORK (TheStreet) -- Stock futures were pointing to a higher open on Wall Street Tuesday as investors were greeted by upbeat earnings reports before the bell and policy makers commenced with the first day of the Federal Open Market Committee meeting.

Dow Jones Industrial Average (DIA) futures were up 8 points, or 9.41 points above fair value, to 16,924. S&P 500 (^GSPC) futures were up 0.25 points, or 0.59 points above fair value, to 1,973.25. Nasdaq (QQQ) futures were up 3.8 points, or 4.51 points over fair value, to 3,963.8.

On Monday, U.S. stocks recouped losses sustained earlier in the day as merger news outweighed weaker-than-expected domestic housing data, and Russia was hit by sanctions from the U.S. and promises of more from the European Union in coming days.

Byron Wien, vice chairman of Blackstone Advisory Partners, writes in his monthly market commentary that the S&P 500 has risen 186% in the 61 months since the March 9, 2009 low. It's been a long time since there's been a meaningful correction -- about 700 days since a decline of 10% and almost twice as long since a drop of 20%. And this type of market action is not unprecedented, said Wien. In the 1990s the S&P 500 continued rising for 1,700 days before a 10% pullback and over 3,000 days before one of 20%. The rise prior to the 2008 decline extended for 1,100 days before a 10% correction, he noted.

"Many investors are worried about a shift in Federal Reserve policy triggering a serious correction in the market," said Wien. "Based on Chairman Yellen's comments on the economy, I do not think an increase in short-term rates is imminent... my own view is that we won't see a rise in rates until mid-2015." But if real GDP growth looks like it will exceed 3% some time in the second half, a rate hike is possible, he adds.

In his report, Wien cites a Ned Davis Research study of market responses to the first increase in interest rates by the Fed, and it shows that the S&P 500 has a sharp negative reaction of usually about 5%, but then continues to move higher afterwards.

Aetna (AET - Get Report) was popping 4.93% to $89 in premarket trading after reporting that its second-quarter net income rose 2.4% to $548.8 million. Adjusted earnings beat by 9 cents at $1.69 a share. The company has raised its 2014 operating earnings-per-share outlook to a range of $6.45 to $6.60 from $6.35 to $6.55.

Merck (MRK) was gaining 1% to $58.55 after posting adjusted earnings of 85 cents a share, topping expectations by 4 cents.

Wells Fargo Securities Equity Strategy says the S&P 500 is now tracking 6.7% year-over-year earnings per share growth for the quarter, up from preseason expectations for 6.3%. Of the 228 reported companies, 69% of them -- and 46% of the index and 57% of the total market cap -- beat EPS estimates. An additional 152 S&P 500 companies are expected to report this week, led by 29 financial companies, 22 energy companies and 21 industrials companies.

The consensus forecast for Pfizer (PFE) is quarterly earnings of 57 cents share on revenue of $12.46 billion. Shipping giant UPS (UPS) is expected to report second-quarter earnings of $1.25 on revenue of $14.11 billion. Twitter (TWTR) releases earnings results after the markets close. Expectations are for a penny loss in the second quarter on sales of $283.07 million. Shares of Twitter were up 0.63% to $38.17 in premarket trading.

The U.S. economic calendar Tuesday includes Conference Board's Consumer Confidence Index for July at 10 a.m. EDT preceded by the S&P/Case-Shiller 20-City Composite Home Price Index for May at 9 a.m. The Federal Open Market Committee kicks off its two-day meeting Tuesday, with its Wednesday announcement landing on the same day as second-quarter GDP figures.

-- By Andrea Tse in New York

TheStreet Ratings team rates AETNA INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate AETNA INC (AET) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and attractive valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 16.0%. Since the same quarter one year prior, revenues rose by 46.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 28.27% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AET should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • AETNA INC has improved earnings per share by 23.0% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, AETNA INC increased its bottom line by earning $5.35 versus $4.78 in the prior year. This year, the market expects an improvement in earnings ($6.53 versus $5.35).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Health Care Providers & Services industry. The net income increased by 35.8% when compared to the same quarter one year prior, rising from $490.10 million to $665.50 million.

TheStreet Ratings team rates MERCK & CO as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate MERCK & CO (MRK) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its increase in net income, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Pharmaceuticals industry average. The net income increased by 7.0% when compared to the same quarter one year prior, going from $1,593.00 million to $1,705.00 million.
  • The current debt-to-equity ratio, 0.56, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.23, which illustrates the ability to avoid short-term cash problems.
  • The gross profit margin for MERCK & CO is currently very high, coming in at 89.02%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of 16.61% trails the industry average.
  • Net operating cash flow has remained constant at $2,361.00 million with no significant change when compared to the same quarter last year. Even though MERCK & CO's cash flow growth was minimal, the firm managed to surpass its industry's average growth rate of -54.80%.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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