Newspaper article THE JOURNAL RECORD

KWall Sstreet Prepares for Sour Earnings Reports

Newspaper article THE JOURNAL RECORD

KWall Sstreet Prepares for Sour Earnings Reports

Article excerpt

In what has become a familiar exercise over the past couple of years, Wall Street is battening down for another round of adverse news on corporate earnings.

Most analysts agree that profit reports due out over the next few weeks for the third quarter of the year will continue to show the effects of the recession.

That has been the dominant theme in the estimates and projections issued by a variety of companies, including several in high technology, since the July-September quarter ended last Monday.

But while individual disappointments may still cause a jolt or two in the stock market, some vocal analysts argue that the biggest surprise may be how calmly the market takes them.

"Earnings prospects will get better soon, which could soften the disappointment of the last of the bad comparisons," said Greg Smith, investment strategist for Prudential Securities, in a current commentary.

"I believe there's a good chance that even bad third-quarter earnings may be greeted with contained dismay by investors, because of the argument that it is the last bad earnings comparison.

"Then, for most companies, earnings comparisons starting in the fourth quarter of this year and all through next year and 1993 should be positive."

To some observers, this prospect goes a long way toward explaining why stocks have been able to hold so persistently at levels that look very high by most standard gauges.

"Many concerned investors point to the fact that Standard & Poor's 500-stock index is selling at 20 times latest 12-month earnings, vs. a historic average of 14 times," said Jack Shaughnessy, research director at Advest Inc. in Hartford, Conn.

"This is inappropriate, because equity markets sell on future earnings, and are currently accorded a multiple of less than 14 times our 1992 estimate excluding nonrecurring items."

Similarly, asserted Michael Sherman at Shearson Lehman Brothers Inc. …

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