Wall Street’s numbers on earnings and revenue for 2010 don’t add up

Good number crunching in the “Ahead of the Tape” column in yesterday’s Wall Street Journal by Mark Gongloff.

Conclusion: It’s hard to see how U.S. companies are going to deliver the earnings growth Wall Street now projects for 2010.

Here are the numbers as Gongloff lays them out.

Right now Wall Street analysts expect the stocks in the Standard & Poor’s 500 to pull down earnings of $73 a share in 2010. That would be a 35% increase from 2009.

And if companies deliver, the index is now trading at 15 times projected 2010 earnings. That’s on the low side of the range that history tells is us fair value.

But the Wall Street consensus is also projecting revenue growth of just 5% to 10% in 2010.

Given how tough it’s been for most companies to grow their top line sales in 2009, that seems like a reasonable projection.

So, Gongloff asks, how do you get from 5% to 10% revenue growth to 35% earnings growth? Read more

Earnings above low expectations? Probably. Revenue growth? Unlikely. Will that be enough for a rally?

Last June when this rally looked likely to falter, earnings bailed it out.

Not that earnings were so great. They were just better than expected. Analysts had reduced their predictions by so much, in fact, that some companies turned in quarters that were 20, 30, or even 40 cents a share better than expected.

On October 5 the market moved on on the hope that earnings season, which starts on October 7 when Alcoa (AA) reports, can repeat that magic. Read more

Update Corning (GLW)

The recent past was much better than expected. The near term future is uncertain. And the long-term looks great.

That’s about the way I’d sum up Corning’s (GLW) second quarter report released before the opening bell on July 27.

For the quarter just completed–the recent past–the company reported earnings of 39 cents a share versus Wall Street expectations for 32 cents a share. Revenue climbed to $1.395 billion for the quarter. That was an 18% decline from the second quarter of 2008, but a big 41% increase from the first quarter of 2009.

Corning saw strength across its product line with a 66% increase in total LCD glass for TV screens and similar uses from the first quarter of 2009 and a 14% increase in sales from its telecommunications business on growth in demand for optical fiber from China and in North America from the roll out of fiber to the home from companies such as Verizon (VZ). That latter business is getting a boost from a new Corning technology, bendable fiber, that makes it much easier to get optical fiber to homes and businesses.

Gross profit margin climbed to 41% from 27% in the first quarter.

But Corning said that the third quarter, while strong, wouldn’t show anything like the quarter to quarter growth the company saw from the first to second quarter of 2009. Glass shipments in the third quarter, for example, will be flat or slightly up in comparison to second quarter levels, said CFO James Flaws. Read more

Update Coach (COH)

Coach (COH) reported that its earnings for the June quarter matched Wall Street expectations at 43 cents a share.

That’s about the last good news for the fourth fiscal quarter that Coach had to announce, however.  Coach certainly hasn’t escaped the collapse in retail sales–although it is weathering the downturn better than most.

For investors who can get past the bad news of this quarter, though, the stock remains a compelling way to profit from the increasing number of middle-class consumers in China. That’s why I put the stock in my book, The Jubak Picks, and why it stays in that portfolio. Read more

How long can the rally run? How fast can Wall Street raise earnings estimates?

Call it the over-reaction reaction. Now that stocks are rallying and companies are beating Wall Street earnings estimates, Wall Street analysts have started to raise their projections for 2010 earnings.

The move may not be based on real fundamentals, but it will provide a good excuse for investors who want to buy to keep on buying.

In June Wall Street analysts raised their earnings forecasts for companies in the Standard & Poor’s 500 896 times and lowered them 886 times, according to JPMorgan Chase. That’s a slim margin, but it’s the first month since April 2007 that analysts have raised estimates more than they’ve lowered them.

That net optimism has pushed June forecasts for S&P earnings to $74.55 a share. In May estimates for 2010 stood at $72.54.

That gives bulls who want to keep on buying all the rationale they need. If you multiply that $74.55 a share in forecast earnings for 2010 times the five-year average price-to-earnings ratio for the S&P 500 of 16.54, then, presto chango, the S&P 500 should trade at 1233, about 26% above the July 27 price of the index.

I think this shift in opinion is an important short-term indicator of stock market sentiment. Rising analyst projections like this do provide a powerful boost to investors looking for a reason to kee buying into a rally. The shift is a sign that this rally could run for a while longer.

But analyst opinions tend to be a trailing indicator. Even though they’re called forecasts, they have more to do with what the market did in the past and how badly analyst estimates missed the mark back then, than they do with expert, inside knowledge about future business conditions.

Let’s look at recent analyst forecasts as trailing indicators. Read more