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Non-Tech : EARNINGS REPORTING - surprises, misses & more
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To: 2MAR$ who wrote (616)5/9/2001 11:49:40 PM
From: Volsi Mimir  Read Replies (1) of 762
 
Beware Forecasts (and CSCO)

economist.com

Which is precisely what many Wall Street analysts have predicted in recent years, pointing in justification to such blessings as freer markets and the technological transformation of the “new economy”. Indeed, despite the deluge of disappointing profits news pouring out of companies so far this year, analysts continue to forecast spectacular long-term profits growth. At the end of March, the average forecast for firms tracked by IBES was of annual profits growth of 19.8% over the coming 3-5 years, barely down from the peak forecast last year of 20.2%. One erstwhile stockmarket darling, Cisco Systems, is still forecast to average 30% annual profits growth during this period.

How plausible are such forecasts? Not very, at least if the past is any guide, concludes a new study by Louis Chan, Jason Karceski and Josef Lakonishok*. They analysed the performance of all active American public companies in 1951-97, and found that the growth now forecast by analysts is way above historic norms. At only one firm in ten did profits grow by 18% or more per year over any ten-year period.

Maybe fundamental economic changes will allow faster growth in future. But, strikingly, the study found no evidence that median long-term profits growth rates have increased in recent years—when those changes presumably started to take effect. Nor is there evidence that analysts are any good at forecasting profits growth. Data on their forecasts for firms in the IBES sample have been available only since 1982. In 1982-98, the median forecast annual growth rate for any 3-5 year period was 14.5%. The median growth rate actually delivered was only 9%.
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