Friday, 14 March 2008

1Q08 Forecasts Get More Realistic 4Q Still Delusional

With 99% of companies having reported, 4Q07 operating earnings for S&P500 companies were nothing short of dismal. Year over year quarterly earnings fell -30.8% in the fourth quarter of 2007, the worst since the -35.4% decline in September 2001.

The good news is that analysts are finally getting more realistic on 1Q08 earnings. For the first time 1Q08 operating earnings are now expected to decline, forecasts calling for a -5.5% drop from the same quarter a year earlier. 2Q08 earnings estimates came down slightly but still forecasting a 0.6% gain.

Still, those forecasts will prove to be too optimistic, expect both 1Q08 and 2Q08 earnings to show double digit declines when all is said and done. Again however, the real optimism can be found in the forecasts for the second half of 2008. 3Q08 forecasts are still calling for a 19.6% increase in year over year quarterly earnings whilst 4Q08 are expected to be a ridiculous 73.6% higher.

If you don't see something wrong with the chart above then you need your eyes tested. It may be that analysts just have no idea what 4Q08 earnings are going to look like at the moment so rather than start slashing forecasts they are taking a wait and see approach. Whatever the case they are still in dreamland and need to come down significantly.