HAVE BUTTON WILL TRAVEL

Posted by: Howard Silverblatt on April 10, 2008

While there is a vocal debate on how realistic the 2008 earnings estimates are, you ain’t seen nutin’ honey til you look at 2009. The current bottom-up 2009 estimates are forecasting a 39.8% earnings increase over the actual 2007. That puts the 2009 P/E at a very attractive 11.7; of course a good time (or forecast) is not shared by all. Top-down estimates (that incorporate a slight slowdown in the economy, a few charges for layoffs, inventory, and mark-to-market, as well as some bumps along the way), are estimating that 2009 earnings will be 4.2% lower than 2007, which puts the P/E at 17.1.

So if you believe the bottom-up analysts’ 2009 forecast you should start making buttons that read “Re-elect the senator for four more years”, since it would mean that with less than one year in office the new president has turned things totally around, added stability and increased earnings by 39.8% over 2007 actual.

If your thinking is more with the top-down people, you may want to change the button to read “We’re taking the pain, now show us the gain”.

As for me, I’m just trying to get through Q1, where there appears to me no consensus on individual company earnings. One thing for sure however, a lot of investors are going to be surprised real soon, which can only add to volatility.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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