Biggest of the Big Stocks: The Earnings Outlook
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
‘98 est. EPS growth: +16
‘99 est. EPS growth: +11
Est. 3rd-qtr. EPS growth: +15
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Local and wireless provider expanding into long-distance, eyeing growth in Latin America and Europe.
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Stock: General Electric
Ticker symbol: GE
Wednesday close: 75.00
YTD change: +2
% off 52-week high: -23
Est. calendar-year ’98 EPS*: 2.80
‘98 est. P/E*: 27
‘98 est. EPS growth: +14
‘99 est. EPS growth: +14
Est. 3rd-qtr. EPS growth: +15
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Diverse product line helps shield it from weak global economy. It promises to meet third-quarter profit estimate.
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Stock: Merck
Ticker symbol: MRK
Wednesday close: 125.81
YTD change: +19
% off 52-week high: -10
Est. calendar-year ’98 EPS*: 4.29
‘98 est. P/E*: 29
‘98 est. EPS growth: +15
‘99 est. EPS growth: +16
Est. 3rd-qtr. EPS growth: +14
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Drug issues are favorites in shaky market, but mature products make up big chunk of sales and analysts worry about new-drug pipeline.
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Stock: AIG
Ticker symbol: AIG
Wednesday close: 70.19
YTD change: -3
% off 52-week high: -31
Est. calendar-year ’98 EPS*: 3.50
‘98 est. P/E*: 20
‘98 est. EPS growth: +14
‘99 est. EPS growth: +14
Est. 3rd-qtr. EPS growth: +13
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Planned SunAmerica merger would give insurance leader premium annuity franchise; ongoing global expansion is lucrative but risky.
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Stock: Bristol-Myers Squibb
Ticker symbol: BMY
Wednesday close: 92.75
YTD change: -2
% off 52-week high: -26
Est. calendar-year ’98 EPS*: 3.58
‘98 est. P/E*: 26
‘98 est. EPS growth: +14
‘99 est. EPS growth: +13
Est. 3rd-qtr. EPS growth: +13
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Sales of top drugs remain strong and the beauty-care business is thriving, but that hasn’t helped the stock lately.
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Stock: IBM
Ticker symbol: IBM
Wednesday close: 120.75
YTD change: +15
% off 52-week high: -13
Est. calendar-year ’98 EPS*: 6.49
‘98 est. P/E*: 19
‘98 est. EPS growth: +7
‘99 est. EPS growth: +15
Est. 3rd-qtr. EPS growth: +13
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PC sales are weak and strong U.S. dollar hurts sales numbers, but new mainframe system is promising and tech services business keeps growing.
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Stock: Johnson & Johnson
Ticker symbol: JNJ
Wednesday close: 77.31
YTD change: +17
% off 52-week high: -4
Est. calendar-year ’98 EPS*: 2.68
‘98 est. P/E*: 29
‘98 est. EPS growth: +11
‘99 est. EPS growth: +12
Est. 3rd-qtr. EPS growth: +11
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With rising sales and profit margins, the stock of the big drug maker and medical products company has held up well.
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Stock: Bell Atlantic
Ticker symbol: BEL
Wednesday close: 51.00
YTD change: +12
% off 52-week high: -4
Est. calendar-year ’98 EPS*: 2.71
‘98 est. P/E*: 19
‘98 est. EPS growth: +11
‘99 est. EPS growth: +10
Est. 3rd-qtr. EPS growth: +10
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Pending GTE merger a key to long-term growth; efficient company expanding long-distance share on East Coast.
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Stock: Philip Morris
Ticker symbol: MO
Wednesday close: 48.88
YTD change: +8
% off 52-week high: -2
Est. calendar-year ’98 EPS*: 3.16
‘98 est. P/E*: 15
‘98 est. EPS growth: +9
‘99 est. EPS growth: +11
Est. 3rd-qtr. EPS growth: +9
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Litigation threat remains, but stock is up 24% in market pullback as investors rush to old-time “defensive” plays.
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Stock: Procter & Gamble
Ticker symbol: PG
Wednesday close: 77.38
YTD change: -3
% off 52-week high: -18
Est. calendar-year ’98 EPS*: 2.66
‘98 est. P/E*: 29
‘98 est. EPS growth: +9
‘99 est. EPS growth: +14
Est. 3rd-qtr. EPS growth: +5
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After profit warning last month, old notion about sturdiness of consumer products companies is out the window.
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Stock: Intel
Ticker symbol: INTC
Wednesday close: 79.06
YTD change: +13
% off 52-week high: -17
Est. calendar-year ’98 EPS*: 3.15
‘98 est. P/E*: 25
‘98 est. EPS growth: -19
‘99 est. EPS growth: +20
Est. 3rd-qtr. EPS growth: -9
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Wall Street is looking for chip giant to beat estimates when it reports earnings Tuesday; said last month that quarterly revenue would top prior forecast.
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Stock: Coca-Cola
Ticker symbol: KO
Wednesday close: 63.31
YTD change: -5
% off 52-week high: -29
Est. calendar-year ’98 EPS*: 1.46
‘98 est. P/E*: 43
‘98 est. EPS growth: -11
‘99 est. EPS growth: +10
Est. 3rd-qtr. EPS growth: -13
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Warren Buffett is hanging tight, but last month’s profit warning underscored fact that 70% of sales and 75% of earnings come from abroad.
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Stock: BankAmerica
Ticker symbol: BAC
Wednesday close: 48.94
YTD change: -20
% off 52-week high: -45
Est. calendar-year ’98 EPS*: 4.22
‘98 est. P/E*: 12
‘98 est. EPS growth: +1
‘99 est. EPS growth: +28
Est. 3rd-qtr. EPS growth: -16
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With NationsBank merger complete, a coast-to-coast banking monolith; says loan exposure to hedge funds is less than $300 million.
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Stock: Exxon
Ticker symbol: XON
Wednesday close: 74.06
YTD change: +21
% off 52-week high: -3
Est. calendar-year ’98 EPS*: 2.66
‘98 est. P/E*: 28
‘98 est. EPS growth: -18
‘99 est. EPS growth: +12
Est. 3rd-qtr. EPS growth: -22
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After devastating slide, oil prices are picking up slightly; along with aggressive stock buyback, that has stock flirting with all-time high.
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Stock: Royal Dutch Petroleum
Ticker symbol: RD
Wednesday close: 49.50
YTD change: -9
% off 52-week high: -18
Est. calendar-year ’98 EPS*: 1.85
‘98 est. P/E*: 27
‘98 est. EPS growth: -25
‘99 est. EPS growth: +24
Est. 3rd-qtr. EPS growth: -38
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Stock has improved recently on optimism that oil price slide is over; oil and gas production is rising, a potential long-term payoff.
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Stock: S&P; 500
Ticker symbol: SPX
Wednesday close: 970.68
YTD change: 0
% off 52-week high: 18.5
Est. calendar-year ’98 EPS*: 46.70
‘98 est. P/E*: 21
‘98 est. EPS growth: +3.9
‘99 est. EPS growth: +19.4
Est. 3rd-qtr. EPS growth: -2.4
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Note: Companies ranked by projected quarterly earnings growth rates.
* EPS = earnings per share; P/E = price-to-earnings ratio.
Sources: First Call, Bloomberg News, Value Line Investment Survey
