Kent,
When you look at this years earnings estimates, the analysts have a relatively easy time. Keeping in mind that the FY for each of these companies ends at different months within the calendar year - and that in many cases actual earnings have already been compiled for the first, second or third quarters - the prognosis for this years fiscal performance is relatively well known compared to next years earnings estimates. This means that the $4.86 estimate for the group earnings this year is "narrowing down" to the real number which will be known only have all the actual results have been recorded.
For next year earnings estimates, however, no actual results are known, and perhaps even more importantly, the $24.44 estimate for group earnings is an "educated" (oxymoron?) guess at best. The real performance of the group for next year is what we are all trying to pin down. First of all, let's assume that the present estimates are correct. That says that the growth in earnings for next year must be on the order of 500 percent! Perhaps that is achievable if the group business recovery comes sooner than later.
I have watched the earnings estimates continue to be revised steadily downward for the last several months. Who can say with certainty when these downward revisions will cease, level out, and then increase. I haven't kept track of these estimate changes in the past, but I intend to monitor these estimates and store them at periodic intervals in the future. Reviewing the average group numbers over a period of time may be a valuable indicator as to when the perception of the analysts (and the companies theoretically) changes from negative to positive.
The present difference ($4.86 vs $24.44) between the 2 FY's, says that a substantial turn around in business conditions must occur in the relatively near future to have that kind of positive impact on earnings. If a further delay than presently expected occurs in improved business conditions, that $24.44 number is going to continue to deteriorate towards the $4.86 number presently estimated for this year. To me, this $24.44 number is key. At Friday's closing price, this gives a PE of 21. Pretty heady for a group that has shown very little overall growth for the last three years since 1995. If the $24.44 number continues to decrease, driving the PE even higher, the group stock prices will be under pressure to decrease even further.
The above is a long-winded way of saying I agree with you. A real change in sentiment and overall group earning estimate increases needs to be seen before going long on these stocks. |
