Perspectives Blog

Beware of earnings gimmicks

Jason Wang, Senior Quant Analyst | March 10, 2014

The combination of slow revenue growth, high existing margins and increased multiples creates incentives for more aggressive accounting. Stocks with the lowest accounting accruals outperformed their benchmark by 2.7% per year between 1993 and 2013. History suggests that paying close attention to changes in earnings quality can be of significant value for investors. Since the global financial crisis, economic recovery worldwide has been slow. O…

Should investors care about valuation?

Rich Rosen, Portfolio Manager | November 25, 2013

Is valuation an effective tool for deciding on whether to invest in a stock? We look at other drivers of a stock’s worth Earnings and earnings growth could be more useful in evaluating a stock’s worth Many of the market experts paraded around on the business programs, when asked about their forecast for stocks, often begin with a comment about valuation. But really, how effective is valuation as a gauge for determining whether it is a good tim…

The cons of pro forma earnings

Paul DiGiacomo, Senior Analyst | January 7, 2014

Analysts assimilate data from many sources to evaluate a company’s underlying earnings potential. Over the last 20 years, company managements have adjusted generally accepted accounting principles (GAAP) results to aid analysis. As pro forma earnings proliferate, analysts must carefully evaluate treatment of reported results. As the fourth quarter comes to a close, analysts are adjusting their earnings estimates for the final months of the yea…

Triangulating on 2014 corporate earnings

Tom West, Director of Equity Research | January 27, 2014

Estimating corporate earnings with bottom-up forecasts, top down forecasts and empirical forecasts will result in a range of outcomes While we believe bottom-up forecasts provide the best estimate, the other two methods can be useful in testing the result We look at top down build-up earnings growth for the S&P 500 and growth expectations by sector to arrive at an EPS growth estimate for 2014 I generally think the best way to build up an e…

M&A in healthcare – Out with the old, in with the new?

Harlan Sonderling, CFA, Senior Healthcare Analyst | March 31, 2014

…and claims. The “old” healthcare M&A In the “old days,” pharmaceutical Company A would announce its acquisition of Company B for stock, cash and stock, or cash only. Company A would forecast that the deal is “dilutive to earnings in year one, neutral in year two, and accretive in year three.” Investors recognized that the expected benefits of the acquisition accrued more to the selling shareholders than to the acquirer’s. More often than not…

An improving outlook for European equities

Philip Dicken, Head of European Equities, Threadneedle International Ltd | October 18, 2013

…(PMIs) have also shown a recovery; for example, France’s composite flash PMI moved above the crucial 50 level in September, a 19-month high. The German composite PMI hit an eight-month high. This should point to an uptick in earnings which have suffered a long period of negative revisions. Moreover, the pace of change is particularly interesting versus the U.S. market. European earnings are down by around 4% year on year (compared to the 2% decl…

Global Asset Allocation Outlook (as of February 24, 2014)

Columbia Management Global Asset Allocation Team, | March 10, 2014

…card model also point to a moderately bullish outlook for equities. Equity momentum remains in a favorable state and macro factors on balance support this trend. In our country scorecard, U.S. rankings improved significantly. Earnings growth has improved and technical conditions have strengthened. U.S. monetary policy remains largely accommodative and stock market valuations are not overtly elevated for this stage in the business cycle. In light…