Many investors are increasingly convinced that the
worst of the recession is behind us. Although
optimism about future growthhas pushed share prices up
fairly dramatically since earlier this year, it's taken
awhile for that optimism to translate into higher
expectations for company earnings.
Slow on the uptake
That delayed reaction is nothing new for growth stocks.
When
the recession first hit, many high-growth companies
didn't immediately face up to the prospects of falling
earnings and revenue growth rates. Given the way their stocks
had performed throughout the previous bull market, investors
hoped that those companies would stay resilient and
buck the trend with sustained growth. As a result, it was
easy to stay in a state of denial about just how bad the
market meltdown would be -- at least until companies started
reporting
actual resultsthat shellshocked shareholders simply
couldn't ignore.
Similarly, after the market's lows in March, investors
weren't necessarily in any hurry to think about an earnings
recovery, even as share prices started to rebound quickly.
Having gotten burned by companies that didn't hold up as well
during the recession as they had hoped, investors were
conservative in their expectations.
Now that many companies have reported a couple of quarters
of decent results, however, analysts are finally getting
around to marking up their guesses on future earnings. Just
take a look at how much forward estimates for some companies
have risen in just the past 90 days:
Stock
Forward EPS Estimate 90 Days
Ago
Current Forward EPS Estimate
Change
Priceline.com (Nasdaq: PCLN)
7.43
8.97
20.7%
Apple (Nasdaq: AAPL)
7.88
9.35
18.7%
Google (Nasdaq: GOOG)
24.59
26.29
6.9%
Intel (Nasdaq: INTC)
1.10
1.46
32.7%
Baidu (Nasdaq: BIDU)
8.38
9.28
10.7%
BHP Billiton (NYSE: BHP)
2.96
4.02
35.8%
Ebix (Nasdaq: EBIX)
3.16
3.63
14.9%
Source: Yahoo! Finance. Forward
estimates are for the next fiscal year.
In most of these cases, rising estimates are only putting
these companies' profits back in line with their longer-term
expected trends. Notice how their expected near-term earnings
growth now compares with five-year estimates:
Stock
Expected Earnings Growth This
Year
Expected Earnings Growth Next
Year
Expected 5-Year Earnings Growth
Priceline.com
25%
19.8%
18%
Apple Continued... |