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To: ms.smartest.person who wrote (735)	11/13/2001 7:21:15 PM
From: ms.smartest.person	Read Replies (1) \| Respond to of 5140

Briefing/Stock Brief: Q3 Earnings Scorecard and The Implications 12-Nov-01 00:21 ET [BRIEFING.COM - Robert V. Green] We are now about 80% of the way through this quarter's earning report season. Here's an update on how the overall market is doing. Earnings Scorecard The table below gives a quick update of how the various market indexes have reported so far. Dow 30 Nasdaq 100 S&P 500 Companies Reported 27 90 409 Percent of total 90% 74% 82% Number (percent of reported) Beat Estimate 12 (44%) 43 (58%) 197 (48%) Number (percent) In Line 3 (11%) 12 (16%) 86 (21%) Number (percent) Below Estimate 11 (41%) 18 (24%) 116 (28%) On the one hand, it is encouraging to see that companies are beating estimates. However, this also speaks to companies' and analysts' abilities to accurately adjust the earnings as the report date gets closer. A more meaningful way to look at the market, is a comparison of revenues to a year ago. This tells a very different story, particularly if you separate technology stocks from the rest of the market. Not The Whole Story An interesting story develops if you look at the quarter versus a year ago. Here is a list of stocks with revenue declines from a year ago, separated by whether they are technology stocks or "non-tech" stocks. Technology Stocks Non-tech stocks Total 2,268 7,186 Quarterly Revenue Decline versus Year Ago 1,298 (57%) 2,850 (39%) There is no question that these aren't boom times. Few stocks are showing earnings increases over the same quarter a year ago. Technology Stocks Non-tech stocks Total 2,268 7,186 Quarterly EPS Increase versus Year Ago 151 (7%) 1,863 (26%) A more interesting story however, appears when you take a look at the stocks with quarterly revenue declines. Non-tech stocks, on average, are showing earnings per share increases. Technology Stocks With Revenue Declines Non-tech stocks with Revenue Declines Average Revenue Decline -25.6% -10.3% Average EPS Decline -28.4% 9.8% Note: the EPS decline number is calculated only with stocks that had positive earnings in the year-ago quarter. Stocks with negative earnings a year ago are excluded from this calculation. All averages are market cap weighted. What this last table of data implies is this: Profitable non-tech companies have suffered revenue declines, but have used the environment to trim expenses. Of those companies with revenue declines, average earnings has actually increased. A good example is GE, which had a revenue decline in Q3 from $32 billion to $29 billion, but had earnings rise from $0.32 a share to $0.33 cents a share. Technology companies, in contrast, have not been able to adjust their operating model to accomodate revenue declines. Of those technology stocks which were profitable a year ago, the average revenue decline has devastated earnings. A good example of the tech stocks is Cisco, which had a revenue decline of 32%, dropping to $4.5 billion from $6.5 billion, and dropped earnings per share to $0.04 from $0.18 per share a year ago. Two Economies A broad conclusion is that we have two economies right now. The technology economy is in depression, and has been for nearly a year. But the overall economy is in milder recession, with earnings actually increasing for many companies that were already profitable. As an investor, you should recognize this dual-economy factor, and separate your thinking about the technology arena from your thinking about the overall economy. Efficient Companies Ready For A Recovery If you believe economic recovery is coming, then it makes sense to invest in efficient companies that will benefit from a recovery. Companies that establish efficient operating models in lean times can generally rapidly improve earnings in better times. Value oriented investors who believe in an overall economic rebound might find it worthwhile to look for non-technology companies that have shown revenue declines in combination with earnings increases. The premise would be that the company has become more efficient, and therefore will show sharp earnings increases when the economy finally rebounds. Technology investors can follow the same premise, but should not count on a rebound in the overall economy to directly effect technology stocks. Tomorrow's Stock Brief will present the results of these approaches to looking for stocks, based on the premise that stocks which have increased earnings while suffering revenue declines are well positioned for a recovery. Comments may be emailed to the author, Robert V. Green, at rvgreen@briefing.com <http://www.briefing.com/images/Briefing/bullet_top3.gif> Back to Top Copyright © 2001 Briefing.com, Inc. All rights reserved. subscription may be required briefing.com