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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (27766)	7/25/1999 5:06:00 AM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

Outlook: Halftime earnings scorecard <<Which goes to prove, of course, that by the time a company reports its earnings, Wall Street is already looking ahead to the next quarter.>> EW YORK. 05:00 AM EDT—So far, so good. Halfway into the earnings season and the numbers are looking remarkably healthy. Of course, they usually do: Companies tend to beat expectations much more often than they miss them. Nonetheless, earnings were exceptionally good in the second quarter. Profits have blasted past even the most optimistic forecasts. About half of the roughly 2,000 listed companies tracked by Zacks Investment Research have now reported earnings. As many as 57% of them exceeded expectations, compared with 48% a year ago. As usual, the tech sector is ahead of the pack. We asked Mitch Zacks, a fund manager at the company that bears his family's name, to compile a list of the best and worst surprises among big-cap tech stocks. Here's what he found: Best earnings surprises: Rep. date Company Name Actual EPS Estimated EPS Surprise (%) 7/21/99 Silicon Graphics 0.12 -0.04 400 6/21/99 Cabletron 0.04 0.01 300 7/19/99 Comsat 0.22 0.09 144 7/19/99 Entrust Tech. 0.02 0.01 100 7/20/99 Realnetworks 0 -0.01 100 Worst earnings surprises: Rep. date Company Name Actual EPS Estimated EPS Surprise (%) 6/23/99 Micron Tech. -0.1 -0.01 -900 7/15/99 Iomega -0.07 -0.04 -75 7/20/99 Cadence 0.08 0.21 -61.9 7/8/99 Total Sys Svc 0.07 0.09 -22.22 7/13/99 Pairgain Tech 0.05 0.06 -16.67 Source: Zacks Investment Research. Zacks says he's not surprised that so many companies manage to beat Wall Street's forecasts. "In a bull market, you'd expect to see more positive earnings surprises," he says." Analysts are too slow to catch up with the growth in many companies. They'll see improvements in the bottom line, but they'll resist making dramatic changes in their forecasts." Zacks adds that companies are also becoming much more sophisticated at managing earnings. In a practice that is currently being scrutinized by federal regulators, accountants sometimes smooth out the earnings stream by creatively using write-offs and one-off charges. The result is an earnings stream that looks deceivingly stable. Microsoft (nasdaq: MSFT) is the latest of corporate titans that have come under the Securities and Exchange Commission's critical eye for alleged manipulation of the quarterly balance sheets. On top of that, companies are becoming better at handling the market's expectations. Negative earnings surprises can be deadly for the stock price. The trick is to keep expectations just below what the company can realistically achieve. Once again, Microsoft is a good example of a company that has mastered this skill. Every quarter, Microsoft beats expectations. And just as predictably, the company says it's facing a much tougher quarter ahead. And so on. What do these earnings surprises tell us? For one thing: they don't matter much. SGI's stock (nyse: SGI) is up a mere 6% since the company blew away earnings estimates, and runner-up Cabletron (nyse: CS) is down almost 16%. In contrast, Micron Tech (nyse: MU)--the worst performer in our table--has seen its stock rise by about 15% since the company reported earnings.Which goes to prove, of course, that by the time a company reports its earnings, Wall Street is already looking ahead to the next quarter.