Analysts’ Profit Forecasts: Worse Than Ever!



"At the start of the year, profits at banks, brokers and insurance companies were projected to rise 22 percent in 2008, according to the average estimate of analysts surveyed by Bloomberg. They’re now expected to decline 48 percent."

-Bloomberg’s Chart of Day


How bad are fundie analysts as a group? Well, as the chart up top shows, the earnings forecasts of Wall Street Analysts "missed the mark by the biggest margin in at least 16 years last quarter," according to Bloomberg data.

How often did the Street get it right? Try 6.7% for the companies in the S&P500 Index in Q2. That’s the  worst showing since Bloomberg began tracking this data way back in 1992.

While some blame the credit crunch, Oil, and Housing as the problem, a more likely source of error is Reg FD. Analysts have been increasingly wrong since the adoption in October 2000 of Regulation Fair Disclosure. The regulations barred CEOs and CFOs from giving the inside dope to the outside dopes. No more whisper numbers to favored bankerd or their pet analysts.

What does this mean to investors? Well, traditional Wall Street Research seems to be of minimum value to investors. Its no surprise that the fastest growing form of analytics  (yes, I am talking my own book here)  is quantititive — no C-level execs needed. 


Follow Analysts at Your Own Financial Risk (June 2008)

Schwab: We Don’t Need Your Stinkin’ Analysts (April 2008)

Analysts’ Profit Forecasts Missing More Than Ever: Chart of Day
Lynn Thomasson
Bloomberg, Aug. 20 2008

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  1. joe commented on Aug 22

    as an institutional investor, sell side research is very useful for some things, very useless for others. on the useless side of the ledger: earnings estimates, buy/sell calls, target prices. on the useful side: industry and company overview particularly in unique or complex sectors, comparative analysis to other companies in the same sector, street chatter.

  2. Steve Barry commented on Aug 22

    Macroeconomics should also be applied. Quantitative analysis often requires projecting years worth of future earnings, inflation, risk premiums, etc. One look at the housing and credit charts tells me to avoid all stocks. I don’t need to try to figure out Google’s earnings 5 years from now.

  3. John(2) commented on Aug 22

    Analysts forecasts are basically worthless because at the end of the day they owe their first allegiance to their clients not to investors. Unbelievably, there are a still load of analysts out there with “buy” recs on Fannie/Freddie/LB. Self interest is a much more powerful factor than the decline of the grapevine.

  4. HCF commented on Aug 22


    Speaking of analysts, what do you think about Dick Bove’s comments that Lehman is a hostile takeover candidate? I respect Bove, but disagree with his assessment. I love how Yahoo Finances headline right now is “Stocks Point Higher on Prospect of Lehman Buyout.” I’m thinking: Who the hell can afford AND want to to buy LEH at this point? I’m just waiting for the long-only rumor mongers to tell us that Warren Buffet or the Federal Reserve will buy up the wasteland of RMBS’s and save the day.

  5. Barry commented on Aug 22

    I am sure there will be a thorough SEC investigation into the rumors.

    Lehman Rises After Korea Bank Says It’s `Open to’ Acquisition

    BLOOMBERG:- Lehman Brothers Holdings Inc., the fourth-largest U.S. securities firm, rose 15 percent in New York trading after a report that Korea Development Bank is “open to” an acquisition.

    Lehman climbed $2.03 to $15.75 at 8:30 a.m. before the official open of the New York Stock Exchange. Shares of the New York-based company dropped almost 80 percent this year before today, the worst-performer on the 11-company Amex Securities Broker/Dealer Index.

    “We are studying a number of options and are open to all possibilities, which could include (buying) Lehman,” a Korea Development Bank spokesman said, according to a Reuters report.

    Lehman, the largest underwriter of mortgage bonds before the subprime market collapsed, lost the confidence of investors in the past year as it struggled to pare debt holdings. The bank has reported writedowns and credit losses of $8.2 billion in the past 12 months, according to data compiled by Bloomberg.

  6. Jeff M. commented on Aug 22

    I assume you’re being sarcastic about the SEC “investigating” this rumor. I mentioned this yesterday. Why is it just A-OK for someone like Bove to throw out rumors that HELP the stock (and a stock he likes/owns, right?) but when the short-sellers do it the other way, it’s criminal?

  7. Jeff M. commented on Aug 22

    I also assume that Cramer will decry these rumors about Lehman as well? Nevermind…..

  8. Steve Barry commented on Aug 22

    According to Liesman at Jackson Hole, the one thing the Fed is sure of is that housing is key to recovery.

    They are either lying or in extreme denial. They are trying to make us believe that some freak, once in a generation housing problem is to blame for everything…when in fact housing is just an outgrowth of 60 years of disastrous Fed policy that hooked us on debt, scrapped all regulatory oversight of lending and fueled the greatest credit bubble of all time.

  9. Juhuti commented on Aug 22

    Didn’t KDB walk away from the table saying that LEH price was too high for a deal? What brought about the change in attitude? Is it that the SEC can’t touch KDB? Will KDB do the same thing as BoA did with Countrywide? Anyone have an answer to any of these questions?

  10. Donkei commented on Aug 22

    Analysts are like economists, very few of whom do anything other than look at past trends and project them forward (Roubini, Meredith Whitney, and a few others being notable exceptions). Any idiot can do that.

    It takes a prescient understanding of forces that might affect global and local markets to create a forward-looking analysis that carries any value. I’d take a good long-view market historian over most Wall Street analysts or economists any day.

    Martin Scholes, the Nobel Laureate of LTCM fame, recently acknowledged (with his new venture facing a few challenges) that the credit crunch was severe and not going away any time soon. I don’t know if that should be tantamount to a contrarian call that the credit crunch must be about over (given the value of his previous insights), or is just a statement of the obvious, with no value whatsoever in understanding how things might evolve. Either way, I think, I’ll just ignore it.

    Understanding risk and worst-casing everything is the best route for those whose principle concern in investing is the return of their principal.

  11. Farnja commented on Aug 22

    Seems to me that the title of the chart might need to be reversed… Were analysts better at predicting actual results, or were actual results better at matching an estimate?

  12. Donkei commented on Aug 22

    Correction: That should have been “Myron Scholes”, not “Martin.”

  13. Rich Shinnick commented on Aug 22

    My assumption has always been that Analysts and many of Wall Street’s leaders don’t get out of the office much and have never even visited the companies they cover; except maybe some steralized and orchestrated “analyst presentations.”

    I could be wrong, but that would mean they have no excuse for their ignorance of the real world and are just idiots….but who am I to judge.

  14. Steve Barry commented on Aug 22

    Saying this is a credit crunch or crisis, is kind of like saying oil is in a bear market after its recent down move (which some are saying BTW). This is a long, painful return to a more sustainable credit environment from a ridiculous bubble. I guess it is easier to say “crunch” than “long, painful return to a more sustainable environment from a ridiculous bubble.” Unfortunately, the very scope of the bubble indicates this will be going on for a decade or so….calling it a crunch gives the hint that it may pass soon.

  15. Jeff M. commented on Aug 22

    @Steve Barry: Agree wholeheartedly, which means the financial services industry as a whole is going to contract in a big way during that time. Unfortunately everyone in the industry is STILL in denial about this……

  16. Dan Duncan commented on Aug 22

    I hear what you’re saying about the joke that is fundamental analysis, but don’t the Quants have their fingerprints all over the current mess that we are in?

    Hyper-Securitization…”AAA” tranches…Tens of trillions of CDOs…”Borrower default models”…30-50X leverage…doubling/tripling and then “one more last one” of a quadruple down on a bad bet…

    The “Fundamentalists” certainly blew it by being fundamentally oblivious.

    But if the Fundies were enablers, the Quants were the pushers.

    Sensitive dependence on initial conditions. It’s the one area on which too many quant models are stupefyingly insensitive.

    Yes, too many of the Fundamental Analysts are quacks, peddling placebos.


    Too many of the Quants…well, damn…they are just dangerous. They remind me of Big Pharma—peddling hyper-concentrated doses of Oxy to treat a the minor headache that is simple portfolio maintenance.

  17. Barry commented on Aug 22

    That was a specific type of leveraged, black box, quant fund.

    What I was referring to was the analytic process of using market mathematics (trend, price, volume, short interest, money flow, inst ownership, etc.) to determine what to own and what to avoid — as opposed to listening to CEOs/CFOs, looking at old earnings data, relying on lagging information, etc.

    We don’t use a “black box” — humans take the output, and then exercise some judgement. We agree with the philosophy of mathematician Baruch Spinoza on using PCs as tools rather than substituting machine judgements over humans…

  18. Frank commented on Aug 22

    Steve Barry, in this headline-driven “what have you done for me lately”, “tell me something I don’t already know” society we live in, I doubt the credit crunch can maintain it’s center stage position in the public consciousness for a decade or so. More likely, there will be a very slow but steady healing process in the credit markets – which will ultimately feed upon itself – as people and businesses go back to borrowing money to acquire things for which they don’t have the upfront cash to purchase outright.

  19. Steve Barry commented on Aug 22

    Frank…good point…that probably explains why they couch it in terms of housing always. That is something that can hold the public’s interest indefinitely.

  20. yathrib commented on Aug 22

    “The regulations barred CEOs and CFOs from giving the inside dope to the outside dopes.”


    “No more whisper numbers to favored bankerd or their pet analysts.”

    For a second I thought you were creating a new derogatory term for bankers, before I remembered “asdf”. But “banktards” or “bankherd” might still fit.

  21. john commented on Aug 22

    Is the problem Reg FD or the end of the Bull Market. Looks like the projections got better the longer the bullmarket of the 90’s and worse the longer the bear market.

  22. Frank commented on Aug 22

    Steve, true regarding housing, but at some point, people are going to realize and accept that the market has priced their house at certain level. They will then make their buy, sell or hold decisions based on that price level as opposed to the expectation that prices will dramatically fall (or rise) from that level. The $64,000 question ($64 million in inflated dollars) is when that price stabilization point actually occurs…which is anybody’s guess right now.

  23. Movie Guy commented on Aug 22

    BR – “bad are fundie analysts as a group?”

    Let’s take that a step further.

    How bad are the forecasts of the majority of analysts, regardless of specialty, right now?

    Answer: Terrible. Look at Bloomberg’s group of 78. They missed big earlier this week. Huge miss. EIA’s analysts missed big on oil inventory this week. Just name any group of analysts and track their performances.

    Why are analysts projections so screwed up? Do they not get out very often? Do they lack real world experience? Have they forgotten how to do real research? Or are they aliens?

    It’s a pathetic state of affairs.

    The standard BS excuse: “We were surprised…”

    What they should say: “We are stupid beyond your wildest dreams…but keep paying us.”

    I have never seen the situation any more embarrassing. Professionals, my ass. It’s a clown show.

  24. chris commented on Aug 22

    I have investigated over 100 earnings restatement matters, usually for audit committees. One thing that nobody has mentioned is the decline in “earnings management” activity. Less companies giving guidance, less tolerance by auditors for quarterly games and scared executives. Trust me, SOX, SEC enforcement, Enron et al and the demise of Andersen made a difference!

  25. NOR commented on Aug 22

    its all bullish news anyway!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  26. daveNYC commented on Aug 22

    Pontentially silly question, what’s the difference between fundie and quant analysts. Ideally a stock’s price is supposed to be equal to the present value of all future earnings, so how do the two types of analysts work at figuring out that number?

  27. Mark E Hoffer commented on Aug 22

    “”Their Analysts don’t know Perferred Stock from Livestock!”– GG in “Wall Street”

    “Professionals, my ass. It’s a clown show.”

    Posted by: Movie Guy | Aug 22, 2008 11:40:38 AM


    much like those in the Media–that are clueless/water-carriers/hacks, maybe you should make a list of these vaunted “Analysts” (that should have a “c” in their Title) that can’t see Beans, when the Bag is untied..

  28. Bruce commented on Aug 22

    Sometimes the bias that most of us see in the media can explain some of this at least…take CNBC for example…Ron Insana, who for years I saw as just a business moderator on CNBC surprised me when he left and started his own hedge fund…yet I noticed that CNBC occassionally had him back on as an “analyst”….and he sounded pretty much like he did when he was simply working full time for CNBC but it seemed when he was on that his opinion was now more “deeply thought out”…more “analytical”

    But now I see his hedge fund didn’t make it…somehow it all just seems to fit.

    Oh, well…I am sure the other analysts that appear are smarter than Mr. Insana…

    Aren’t they??

    Bruce in Tennessee

  29. Jon H commented on Aug 22

    During that period when analyst accuracy was rising, before FD, I wonder how many of those results were later restated because of being bullshit?

  30. Mike in NOLa commented on Aug 22


    I don’t agree that you do only quant analysis of individual stocks. You are aware of macro trends and it obviously colors your attitude. Nothing wrong with that.

    You are clearly widely read and vacuuming up a huge volume of info and are watching a lot more than numbers on a screen about an individual stock. For example, that 2005 video you posted a day or so ago was really based on more of a fundamental analysis of the housing market and some observations, like the contraindicator of a hot condo market which is not really quant.

  31. Chopped Liver commented on Aug 22

    Ann Taylor closing 117 stores nationwide A company spokeswoman said the
    company hasn’t revealed which stores will be shuttered.. It will let the
    stores that will close this fiscal year know over the next month

    Eddie Bauer to close more stores
    Eddie Bauer has already closed 27 shops in the first quarter and plans to
    close up to two more outlet stores by the end of the year.

    Cache closing stores
    Women’s retailer Cache announced that it is closing 20 to 23 stores this

    Lane Bryant, Fashion Bug, Catherine’s closing 150 stores nationwide The
    owner of retailers Lane Bryant , Fashion Bug , Catherine’s Plus Sizes will
    close about 150 underperforming stores this year.
    The company hasn’t provided a list of specific store closures and can’t say
    when it will offer that info, spokeswoman Brooke Perry said today.

    Talbots, J. Jill closing stores
    About a month ago, Talbots announced that it will be shuttering all 78 of
    its kids and men’s stores. Now the company says it will close another 22
    underperforming stores.. The 22 stores will be a mix of Talbots women’s and
    J. Jill , another chain it owns. The closures will occur this fiscal year,
    according to a company press release.

    Gap Inc. closing 85 stores
    In addition to its namesake chain, Gap also owns Old Navy and Banana
    Republic . The company said the closures – all planned for fiscal 2008 –
    will be weighted toward the Gap brand.

    Foot Locker to close 140 stores
    In the company press release and during its conference call with analysts
    today, it did not specify where the future store closures – all plan need
    in fiscal 2008 – will be. The company could not be immediately reached for

    Wickes is going out of business
    Wickes Furniture is going out of business and closing all of its stores,
    Wickes, a 37-year-old retailer that targets middle-income customers, filed
    for bankruptcy protection last month.

    Goodbye Levitz / BOMBAY – closed already The furniture retailer, which is
    going out of business. Levitz first announced it was going out of business
    and closing all 76 of its stores in December. The retailer dates back to
    1910 when Richard Levitz opened his first furniture store in Lebanon , PA.
    In the 1960s, the warehouse/showroom concept brought Levitz to the
    forefront of the furniture industry. The local Levitz closures will follow
    the shutdown of Bombay .

    Zales, Piercing Pagoda closing stores
    The owner of Zales and Piercing Pagoda previously said it plans to close 82
    st ores by July 31. Today, it announced that it is closing another 23
    underperforming stores. The company said it’s n ot pro viding a list of
    specific store closures. Of the 105 locations planned for closure, 50 are
    kiosks and 55 are stores.

    Disney Store owner has the right to close 98 stores The Walt Disney Company
    announced it acquired about 220 Disney Stores from subsidiaries of The
    Children’s Place Retail Stores. The exact number of stores acquired will
    depend on negotiations with landlords. Those subsidiaries of Children’s
    Place filed for bankruptcy protection in late March. Walt Disney in the
    news release said it has also obtained the right to close about 98 Disney
    Stores in the U.S. The press release didn’t list those stores.

    Home Depot store closings (E. Brunswick, Rt 18 just put up their closing
    sign) ATLANTA – Nearly 7+ months after its chief executive said there were
    no plans to cut the number of its c ore retail stores, The Home Depot Inc.
    announced Thursday that it is shuttering 15 of them amid a slumping U.S.
    economy and housing market. The move will affect 1,300 employees. It is the
    first time the world’s largest home improvement store chain has ever closed
    a flagship store for performance reasons. Its shares rose almost 5 percent.
    The Atlanta-based company said the underperforming U.S.stores being closed
    represent less than 1 percent of its existing sto res. They will be
    shuttered within the next two months.

    CompUSA (CLOSED) clarifies details on store closings Any extended
    warranties purchased for products through CompUSA will be honored by a
    third-party provider, Assurant Solutions. Gift cards, rain checks, and
    rebates purchased prior to December 12 can be redeemed at any time during
    the final sale. For those who have a gadget currently in for service with

    Macy’s – 9 stores

    Movie Gallery – 160 stores as part of reorganization plan to exit
    bankruptcyThe video rental company plans to close 400 of 3,500 Movie
    Gallery and Hollywood Video stores in addition to the 520 locations the
    video rental chain closed last fall.

    Pacific Sunwear – 153 Demo stores

    Pep Boys – 33 stores

    Sprint Nextel – 125 retail locations New Sprint Nextel CEO Dan Hesse
    appears to have inherited a company bleeding subsc ribers by the thousands,
    and will now officially be dropping the ax on 4,000 employees and 125
    retail locations. Amid the loss of 639,000 postpaid customers in the fourth
    quarter, Sprint will be cutting a total of 6.7% of its work force
    (following the 5,000 layoffs last year) and 8% of company-owned
    brick-and-mortar stores, while remaining mute on other rumors that it will
    consolidate its headquarters in Kansas . Sprint Nextel shares are down
    $2.89, or nearly 25%, at the time of this writing.

    J. C. Penney, Lowe’s and Office Depot are scaling back

    Ethan Allen Interiors: The company announced plans to close 12 of 300+
    stores in an effort to cut costs.

    Wilsons the Leather Experts – 158 stores

    Pacific Sunwear will close its 154 Demo stores after a review of strategic
    alternatives for the urban-apparel brand. Seventy-four underperforming Demo
    stores closed last May.

    Sharper Image: The company recently filed for bankruptcy protection and an
    nounced that 90 of its 184 stores are closing. The retailer will still
    operate 94 stores to pay off debts, but 90 of these stores have performed
    poorly and also may close.

    Bombay Company: (Freehold Mall store closed) The company unveiled plans to
    close all 384 U.S.-based Bombay Company stores. The company’s online
    storefront has discontinued operations.

    KB Toys posted a list of 356 stores that it is closing around the United
    States as part of its bankruptcy reorganization. To see the list of store
    closings, go to the KB Toys Information web site, and click on Press

    Dillard’s to Close More Stores
    Dillard’s Inc. said it will continue to focus on closing underperforming
    stores, reducing expenses and improving its merchandise in 2008. At the
    company’s annual shareholder meeting, CEO William Dillard II said the
    company will close another six underperforming stores this year.

  32. leftback commented on Aug 22

    Sell-side analysts.. half of them are 24 year old tools and the rest are hacks.

  33. Howard Silverblatt commented on Aug 23

    Yes, Virginia, there is a Santa Claus, but Q4 EPS setting an all time high, let’s get real

    Financial earnings have been negative for three consecutive quarters, which ties IT’s Q1-3,’01 earnings record, but their 44% stock decline from the October highs is still better than IT’s 18 month (3/00-10/02) 82% free-all. Next quarter, Q3, the Financial sector is expected to be positive, with earnings only declining 52% year-over-year (we can always hope). And their current 12-month P/E of -21,972 is expected to decline (but doesn’t a lower negative P/E mean a higher loss – must be those imaginary numbers from 9th grade algebra).

    Employment/unemployment keeps moving in the wrong direction, and housing, well, at least its shelter from the storm.

    The good news is that oil is down 8.0% at the pump over the last month and Agriculture is down 4.1%; so the 12-month increase is now down to just 34.3% and 30.6% – and they’re still running those “What’s in your wallet” ads – it’s empty, like my gas tank.

    The rebates are gone, and little is now being said about more, at least not from Congress which adjourns next month, only to return January 15th – they need time for all those inauguration parties.

    However, relax, be happy, relief is just around the corner (or the curtain), with Q4 2008. Yes, that quarter which starts in a little over a week for MS, GS, LEH, COST, FDX, KBH, and LEN, is predicted to not just be better, but post the highest quarterly earnings in history, ever! No, it’s not earnings creep from inflation (which depending on who you talk to may not exist) – it’s optimism, because the sun will always come out tomorrow.

    2009 is expected to be even better, with operating earnings projected to be 23.2% above the record 2006 numbers, but (again, don’t pay any attention to that man behind the curtain) the As Reported earnings, under those Generally Accepted Accounting Principles, set by the Financial Accounting Standards Board, are expected to still be down 20.7% from 2006; their respective P/Es are 12 and 20 (for specifics click here).

    Maybe it’s time someone admitted that the market, the economy, and earnings were good for awhile. However, times and cycles change, and things are a lot more difficult now then they were (if you prefer challenging, you’re not there yet). No patriotic speech, but things will get better, then worse and then better again. Hope you’re sitting for the big news, but this will not be the last Bear market. Seems like both parties are quoting Reagan – how about ‘trust but verify’.

    So do you buy now? Well, maybe. Buy if you’re a long-term investor who has time and liquidity on your side, and the ability to ride out the years. You should eventually be able to point back at what, most likely, is now a buying point. Even if it’s not at the bottom, over years, close enough should be good enough. But if you’re part of the weeping majority on a shorter schedule or are just missing a digit or two in your latest cash flow statement, you may want to consider a little less risk, a lot less potential gain, and buying some non-perishable food before the price goes up, or any of those expected post January 15th changes (surcharges, special purpose funds, revenue enhancers, deduction reducers – a tax by any other name) take affect for these challenging times and spend it for you.

  34. mochi commented on Aug 25

    Who caused more damage and destruction to the US economy-Osama Bin Laden and Ayman al -Zawahiri or Stanley O’Neill and Anthony Mozillo? Or to put it another way-who was more dangerous to the US economy-al-Qaeda or Countrywide? O’Neill and Mozillo should be in Gitmo.

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