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Biggest of the Big Stocks: The Earnings Outlook

October 08, 1998|Walter Hamilton | Times staff writer

As the stock market fell sharply through the summer, large-capitalization stocks--and especially big technology issues--held up relatively well. But after earnings warnings from once-reliable Coca-Cola and Procter & Gamble, even longtime favorites have weakened. Tech stocks in particular have been slammed this week on worries that their buoyant sales and earnings growth could be dragged down by a troubled world economy. Already, growth at some companies is expected to ease. Microsoft, for example, is projected to grow 27% this year but only 21% in 1999.

Though the benchmark Standard & Poor's 500-stock index is 18.5% off its mid-July peak, most of the index's 25 largest stocks by market cap are still up for the year. But these stocks account for more than a third of the S&P's value, and as they go, so goes the index.

The big question is whether leading companies can satisfy third-quarter earnings expectations, a question that will start to be answered next week when the companies begin to report their results. Below, a rundown of quarterly profit estimates, as well as current valuations and consensus forecasts for this year and next. Times staff writer Walter Hamilton analyzes the prospects for these market leaders:

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Stock: MCI Worldcom

Ticker symbol: WCOM

Wednesday close: $43.94

YTD change: +45%

% off 52-week high: -24%

Est. calendar-year '98 EPS*: $0.81

'98 est. P/E*: 54

'98 est. EPS growth: +268

'99 est. EPS growth: +144

Est. 3rd-qtr. EPS growth: +200%

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Global telecom powerhouse has smoothly integrated a slew of acquisitions, including giant MCI; a consistently strong grower, but it's pricey.

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Stock: Dell Computer

Ticker symbol: DELL

Wednesday close: 50.56

YTD change: +141

% off 52-week high: -27

Est. calendar-year '98 EPS*: 1.04

'98 est. P/E*: 49

'98 est. EPS growth: +63

'99 est. EPS growth: +36

Est. 3rd-qtr. EPS growth: +50

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Direct-sales model, price edge are envy of the industry, but even with stock almost 20 points off its high, its P/E is still 49.

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Stock: Microsoft

Ticker symbol: MSFT

Wednesday close: 94.13

YTD change: +46

% off 52-week high: -27

Est. calendar-year '98 EPS*: 2.01

'98 est. P/E*: 47

'98 est. EPS growth: +27%

'99 est. EPS growth: +21%

Est. 3rd-qtr. EPS growth: +36

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Sales of Windows 98 and Office 97 are rolling along; the big question mark is the federal government's antitrust lawsuit.

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Stock: Lucent

Ticker symbol: LU

Wednesday close: 57.00

YTD change: +43

% off 52-week high: -47

Est. calendar-year '98 EPS*: 1.81

'98 est. P/E*: 31

'98 est. EPS growth: +32

'99 est. EPS growth: +27

Est. 3rd-qtr. EPS growth: +34

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Asia was bad enough, but market now worried that European companies will cut purchases of communications gear; says it's "not uncomfortable" with estimates.

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Stock: AT&T

Ticker symbol: T

Wednesday close: 58.38

YTD change: -5

% off 52-week high: -15

Est. calendar-year '98 EPS*: 3.41

'98 est. P/E*: 17

'98 est. EPS growth: +24

'99 est. EPS growth: +16

Est. 3rd-qtr. EPS growth: +34

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While questions linger about the planned purchase of cable giant TCI, AT&T accelerates acquisition strategy with deal for Vanguard Cellular.

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Stock: Eli Lilly

Ticker symbol: LLY

Wednesday close: 71.38

YTD change: +3

% off 52-week high: -13

Est. calendar-year '98 EPS*: 1.92

'98 est. P/E*: 37

'98 est. EPS growth: +22

'99 est. EPS growth: +18

Est. 3rd-qtr. EPS growth: +28

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Dealt setback Wednesday on manic-depression drug, but sales of its top two drugs should power earnings into 1999; says profit estimates are OK.

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Stock: Cisco Systems

Ticker symbol: CSCO

Wednesday close: 43.88

YTD change: +18

% off 52-week high: -38

Est. calendar-year '98 EPS*: 1.31

'98 est. P/E*: 33

'98 est. EPS growth: +27

'99 est. EPS growth: +26

Est. 3rd-qtr. EPS growth: +27

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Undoubtedly the premier networker, but weak global economy and new Federal Trade Commission investigation cast shadows.

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Stock: Wal-Mart

Ticker symbol: WMT

Wednesday close: 58.75

YTD change: +49

% off 52-week high: -16

Est. calendar-year '98 EPS*: 1.89

'98 est. P/E*: 31

'98 est. EPS growth: +21

'99 est. EPS growth: +13

Est. 3rd-qtr. EPS growth: +23

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Same-store sales up an impressive 9.5% last month; retailer keeps plowing into overseas markets. Next up in U.S.: supermarkets.

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Stock: Pfizer

Ticker symbol: PFE

Wednesday close: 90.63

YTD change: +22

% off 52-week high: -25

Est. calendar-year '98 EPS*: 2.12

'98 est. P/E*: 43

'98 est. EPS growth: +25

'99 est. EPS growth: +22

Est. 3rd-qtr. EPS growth: +22

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Stock's off 16% in two weeks, partly because Viagra sales may be easing; but it's still Pfizer's No. 2 drug worldwide and the new-drug pipeline is rich.

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Stock: SBC Communications

Ticker symbol: SBC

Wednesday close: 47.94

YTD change: +31

% off 52-week high: -2

Est. calendar-year '98 EPS*: 2.07

'98 est. P/E*: 23

'98 est. EPS growth: +18

'99 est. EPS growth: +14

Est. 3rd-qtr. EPS growth: +18

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As investors rush to "safe" phone issues, stock has been notching one new high after another; merging with Ameritech to gain more business customers.

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Stock: BellSouth

Ticker symbol: BLS

Wednesday close: 78.81

YTD change: +40

% off 52-week high: 0

Est. calendar-year '98 EPS*: 3.25

'98 est. P/E*: 24

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