Analysts are predicting an end to the crippling shortfalls in corporate earnings that plagued companies across the board last year.
And that could mean the recent market rally could have some legs – especially for tech companies, which are doing better.
Earnings season for the fourth quarter kicks off in earnest next week, but earnings preannouncements are just ending.
And early numbers show the percentage of companies giving positive reports jumped by more than 50 percent over last quarter.
Moreover, the fourth quarter looks to stack up as the first since the tech wreck to show such a large amount of companies overshooting expectations.
Evidence continued to mount yesterday as both Compaq and Gateway forecast unexpected profits.
“We have not seen 25 percent or more of companies positively preannouncing since just before the dot-com bomb in the first quarter of 2000,” said Steve Rigo, research analyst for Thomson Financial.
Preannouncements are reports companies make prior to earnings season to give Wall Street a hint on whether the company will meet earnings expectations or fall short.
Here’s how preannouncements are shaping up with only a few days left to go.
Of the 1,217 companies that have preannounced earnings for the fourth quarter, 303 or 25 percent came in positive, or above analysts’ estimates, while 354 or 29 percent of companies reported earnings in line with estimates, and 560 or 46 percent reported earnings were negative, or below estimates.
By comparison, for the third quarter, only 199 or 17 percent of companies gave positive preannouncements, 227 or 20 percent were in line, and 715 or 63 percent were negative.
That’s a 52 percent increase in companies that believe their earnings will exceed analysts’ expectations.
While the heft in negative preannouncements is still weighty, the jump in positive preannoucements bodes well.But there’s more good news.
On the tech front, technology companies, battered and bruised by lousy earnings for over a year, are reporting a 37 percent increase in positive preannouncements.
Out of 268 companies, 80 or 30 percent came in positive, 59 or 22 percent were in line, and 129 or 48 percent reported negatively.
While in the previous quarter, at the same time, of 337 preannouncements, 58 or 17 percent were positive, 47 or 14 percent were in line and 232 were negative.
The flooding of good news into the marketplace has certainly helped stocks. The S&P gained 21 percent last quarter and the Nasdaq skyrocketed 45 percent.
And good earnings news should boost the economic recovery as well.
The recession has been brought on in large part by the fall-off in corporate spending. As long as earnings remain in a slump, the company check book has slammed shut – regardless of increasingly low interest rates.
Should corporate profits improve as the preannouncements show, spending should improve as well, taking some of the pressure to buy the nation out of recession off consumers.
But the gloom’s not over just yet.
Despite the increase in good news coming out of corporate boardrooms, earnings overall will still decline throughout the first quarter of this year, according to Thomson Financial.
The future looks bright
Earnings seasons kicks off next week, and Thomson Financial analysts say preannouncements are looking good: Positive preannouncements have jumped more than 50 percent over last quarter. And that includes some in the bombed tech sector.
Some companies that have positively preannounced, after posting negative earnings for several quarters:
* Nortel Networks
* JDS Uniphase
* Honeywell International
* NVidia
Tech companies expected to preannounce this week (and predictions):
* Qualcomm (higher)
* Microsoft (higher)
* Cisco (in line)
* ADC Telecom (lower)
* Lucent (lower)