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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: John F. Dowd who wrote (12858)	12/2/1998 3:54:00 PM
From: Reginald Middleton	Respond to of 74651

<At least 19 analysts have raised their earnings estimates for the next two quarters since the company guided forecasts higher in October.> You wouldn't want to know what I call most analysts. The average sell side analyst is awful at predicting performance for Microsoft, and most other technology companies. I looked up the performance of individual brokers and consensus estimates and did a satire on the results. It probably would have been funny if it wasn't so true. This is all part of my buck the establishment trend - first go after earnings calculations (Mr. Levitt, the SEC chairman is actually joining me in this crusade), then go after earnings consensus and analysts (maybe Mr. Levitt should look into this one as well). Below is an excerpt from the 2nd page of the article at rcmfinancial.com To think, some companies surprise every quarter for the last several years (there are those that would laugh at people who are genuinely surprised by such). If one were to look at the graph to the right, one could assume that Dick's (the nickname for Richard, not the other kind - you have to see the beginning of the article for context :-) simply have no idea what Microsoft's earnings are going to be, despite five years of studying the corporation and a consistent trend upward. I can understand being too conservative once, maybe even twice; three times is pushing it, but six times is outrageous. So, who are the brains behind the apparent inability to see a trend? Who are the actual Dicks? Just look to the next graph for clarification. This chart depicts earnings forecasts revisions of the 39 analysts that track the Microsoft Corporation. For the year 1997, the average rate of indecisiveness was approximately 20%. In 1998, the analytically inclined Dicks of Wall Street changed their minds by over 50% on average (click the chart to drill down to the underlying data). I don't know how you may perceive it, but that is an awful lot of waffling from my perspective. This is even more so if you are relying on these guys to give you credible investment advice, regardless of your standing as an institutional or retail investor. So with all of these changes of perspective and realization of new aspects of the business that were somehow overlooked during the previous 10 quarters (quarter after quarter), how close has each Dick come to forecasting accurate results? Remember, the first graph only dealt with First Call consensus estimates. Look below to see that some brokers adjusted their forecasts upward by as much as 75%, and all of them adjusted upward by more than 50%. Despite this group reconciliation mentality, practically all analysts covering Microsoft have still undershot actual results with some missing by as much as 25% - a considerable margin considering that they have already adjusted upwards by at least 50%. Now changing your mind to the tune of 50-75% and still undershooting the target by a significant margin could easily be translated into incompetent. This is particularly true if it happens on a regular basis. But, remember, I never said Dicks were not smart. Actually, I am sure that many of them are absolute geniuses, I even know a few. It's just those damn conflicts of interest that keep getting in the way...