analysts Gauge How Asia Woes Will Affect U.S. Corporate Profits
what do you think for 98? 8% growth?
Date: 11/17/97
NEW YORK (Reuter) - The financial turmoil in emerging markets could jeopardize 1998 U.S. corporate profits, but U.S.
equity analysts are still assessing the damage and have not started slicing estimates yet.
''1998 is the concern,'' said Chuck Hill, director of research at First Call, which collects and analyzes earnings estimates
by Wall Street analysts. ''With the exception of some big construction companies, we have not seen any cuts of
substance yet . . . But if problems persist and spill over to Japan, analysts will have to start to think about cutting.''
Wall Street has quickly punished shares of companies doing business in Asia and Latin America, where currency
weakness and jitters about higher interest rates have roiled economies in many emerging nations.
Federal Reserve Chairman Alan Greenspan said last week Asia's financial problems could hurt U.S. exports to that
region and have an impact on the U.S. economy.
But while analysts are nervous, they are waiting for the dust to settle and focusing on 1998, when slower global
growth could start to hurt U.S. companies' bottom lines.
The focus on 1998 comes despite high profile announcements like one from Chase Manhattan Corp., which said it
suffered pre-tax trading losses of $160 million in October and cited unusually volatile and adverse markets.
''This is still a fluid situation,'' said Gail Dudack, chief investment strategist at UBS Securities. ''The first time we will
get any real knowledge of the impact is when fourth-quarter results come out in January.''
Alfred Kugel, senior investment strategist at Stein Roe & Farnham, said: ''It is still a little too early. Even the companies
probably don't have a fix on it.''
But wait a while and watch estimates fall, some say.
''The process will take a couple of months,'' said Bruce Steinberg, chief economist at Merrill Lynch. ''We will probably
see a steady dribble of bad news which will go on for several months as analysts reassess their companies.''
Companies could feel the brunt of turmoil abroad in 1998, when economists revise their forecasts for global gross
domestic product growth to include any impact from fiscal troubles in Asia and Latin America, analysts cautioned.
Merrill's Steinberg forecasts earnings for the Standard & Poor's 500 to rise 13% this year, but only 8% next year. <<<<<<====read this
IBES, which tracks earnings, said analysts' earnings projections for the Standard & Poor's 500 index in 1998 have come
down 0.5% since Oct. 3.
First Call said the consensus estimate for Standard & Poor's 500 profit growth from 1997 to 1998 was still hovering at
around 14.8%, but if economists slashed numbers, the stock market would suffer.
''If analysts start reducing their numbers by more than the usual trimming, it will be a problem for the market,'' Hill
said. ''The question is - do they chop numbers for next year?''
Some large U.S. banks with loans and trading operations exposed to Asia and Latin America were already showing signs
of vulnerability, analysts said.
George Salem, an analyst at Gerard Klauer Mattison, cut his rating on Chase, J.P. Morgan & Co. and BankAmerica Corp.
because of uncertainty in Asia.
Paul Rabbitt, quantitative analyst at Oppenheimer & Co. said technology and commodity stocks were seeing some
estimate cuts related to their overseas sales.
''Semiconductor companies sell 49% of their product to foreign buyers,'' he said. ''The fourth-quarter consensus
estimate has declined 12.1% in the past four weeks.''
The consensus estimate for makers of electronic data processor peripherals, which sell 34% of goods abroad, was down
11.8% for the same period, he said.
But First Call said estimate reductions on shares of technology companies were not substantial.
''As far as technology companies go, we have seen no meaningful (estimates) cuts and I don't think we will see any in
the near-term,'' First Call's Hill said.
Technology estimate reductions were tied more to pricing pressures than emerging market turmoil, Hill said.
Construction companies were experiencing earnings estimate reductions, as building projects in Asia were delayed
because to economic conditions, Hill said.
''Fluor and Foster Wheeler and big construction companies are seeing estimate cuts, but in both cases these were
precipitated by the companies,'' he said. |
