Fat profits, back in vogue, put bulls on offensive
By Brendan Intindola
<<NEW YORK, April 18 (Reuters) - The first-quarter earnings season is under way with a strong start, and forecasts for one of the best showings in years are helping to backfill the giant valuation crater left by last week's stock-market blowup.
Overall, U.S. equities have roared back this week amid an increasing flow of above-expectations earnings news, and the timing could not have been better.
With the market devastated last Friday by news of above-expectation consumer inflation, there is a renewed emphasis on financial performance at the expense of momentum investing, or the riding of stock moves with little regard for company fundamentals.
Many shell-shocked investors are now paying attention to investing basics, namely bottom-line earnings and growth, after watching the Nasdaq composite fall last week by a record 25 percent while the Dow Jones Industrial average dropped more than 7 percent.
``There has been a lower number of negative pre-announcements than usual, and earnings are coming in much stronger than we expected,' according to Tony Crooks, research analyst at First Call/Thomsom Financial in Boston.
``What is so great about this quarter, is that it is going to be almost as good as Q3 1999, the best quarter in almost five years, but it is coming off a tougher (year-over-year) comparison, which makes it more impressive,' he said.
First Call is projecting year-over-year earnings growth in this year's first quarter of 22 percent, just off the benchmark third quarter 1999, which was 22.7 percent, Crooks said. Earnings grew 11 percent in the first quarter of 1999.
TEN OF 30 DOW COMPONENTS HAVE BEATEN THE STREET
With results from 10 of the 30 Dow industrial components logged into First Call's database, Crooks said all have exceeded Wall Street forecasts, by an average margin of 9.7 percent.
Notable among the Dow 30 is General Motors Corp. (NYSE:GM - news), he said, which beat expectations on the upside by 14 cents a share, or 5 percent, and Citigroup, which beat expectations by 26 cents a share, coming in at $1.04 vs. $0.78.
Also, J.P. Morgan & Co. Inc. (NYSE:JPM - news) reported earnings of $3.37 per share versus an expected $2.81, he added.
In the broader Standard & Poor's 500 index, the companies have historically topped expectations by 2.8 percent, a fraction of the 7.8 percent average for the first-quarter 2000 earnings season so far, according to First Call.
As of Tuesday morning, the 144 of 500 companies in the S&P 500 had reported earnings, and overall, they have beaten expectations by 7.5 percent. 103, or 72 percent, have exceeded forecasts, 32, or 22 percent, have matched and 9 companies, or 6 percent, have come in below Wall Street's consensus outlook.
PROFITS PROVE THE WORLD NOT COMING TO AN END
Brian Rauscher, investment strategist at Morgan Stanley Dean Witter, said according to his calculations, profits in the first quarter of 2000 profits are up roughly 8 percent among S&P 500 companies so far.
``This is significant because these companies are beating expectations amid rising earnings-estimate revisions. Eight percent is very strong, since the average over the last five years has been 2.5 to three percent,' Rauscher said.
``We think this is stabilising the markets. The world is not coming to an end, profits for the S&P 500 are still healthy and the market is beginning to recognise that,' he said.
While nearly a month remains in the earning-reporting season, today is among the most important dates that will influence the direction of many technology stocks, the most volatile group, and the overall health of the market rebound.
``Later today, IBM, Intel and America Online are reporting,' he said, referring to a trio of tech heavyweights that dominate their respective industries.
``If they beat their numbers, there could be some added stability to the markets. If not, there could be some profit-taking,' he said.>> |
