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Is Merrill Lynch's Misery Index Up?


Inside Wall Street

IS MERRILL LYNCH'S MISERY INDEX UP?

Since hitting an impressive record high of 1023/8 in mid-October, Merrill Lynch has been on the decline, closing at 863/4 on Nov. 22. Just a logical correction for this highflier? "I think not," says Mike Murphy, editor of the Overpriced Stock Service. He believes it's the start of Merrill's fall.

"We have flashed a short signal for Merrill Lynch because we expect the stock to fall to 46 over the next 12 months," says Murphy. He insists that Merrill's earnings will fall to $4 to $5 a share next year from this year's estimated $11.85.

Murphy's view isn't shared by most analysts, who see Merrill earning around $10 in 1994. One factor behind Murphy's projection, however, is that he thinks a bear market has just begun. "Merrill usually falls steeply in advance of the market's big fall," he says. "But bear market or not, Merrill faces an earnings slump in 1994."

One analyst who's also bearish is Nancy Zambell of J.W. Charles Securities in Boca Raton, Fla. She warns: "Merrill's earnings will decline next year and then begin a period of very slow growth."

Zambell expects trading volume in Big Board stocks to drop 5% to 10% next year and investment banking activity to fall 25%. She also sees a rise in competitive pressure on fee income and a moderate rise in interest rates. Meanwhile, she says that Merrill's fixed costs have escalated dramatically this year after decreasing in the past two years. A Merrill spokesman declined comment.

If such a downturn in the capital markets does occur, then Merrill is in for an earnings slump for the next 12 to 24 months, predicts Zambell.GENE G. MARCIAL


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