Zacks.com: Analyst Blog

We are entering a time of the year when the number of estimate revisions is dropping. The reason is that third-quarter earnings season is over and it is too early for fourth-quarter reports. Lehman Brothers (LEH), typically one of the earliest companies to report quarterly numbers, will not release its earnings report until late next week. The scheduled date is Dec 13, before the start of trading.

Aggregate earnings esitmate revisions for 2007 look better than one would expect when compared to the same period last year. As of Tuesday night, 3,339 estimates have been revised up and 3,548 estimates have been revised down over the past four weeks, equating to a Zacks Revision Ratio of 0.94. One year ago, 2,738 estimates had been revised up and 3,007 estimates were revised down - a Zacks Revision Ratio of 0.91.

Since 2007 forecasts are largely based on reported results, I ran a comparison of what brokerage analysts are doing with their 2008 forecasts versus what they were doing with their 2007 forecasts a year ago. These comparisons tell a very different story.

During the past four weeks, analysts have raised 2,589 estimates and lowered 3,741 estimates for 2008 - a Zacks Revision Ratio of 0.69. This time last year, analysts raised 2,342 forecasts and cut 2,615 forecasts - a Zacks Revision ratio of 0.89. In other words, brokerage analysts are now more bearish about the profit outlook for the next 12 months than they were this time a year ago.

This is not suprising given the credit crunch, the sustained housing slump, weakening consumer spending and overall uncertainty about economic growth. In addition, brokerage analysts are continuing to cut their in forecasts on financial stocks. Last week, nine analysts lowered their 2008 profit projections for Wells Fargo (WFC).

I still expect earnings growth to occur next year, but the actual rate of growth could be lower than is currently forecast. For the aggregate S&P 500, the consensus estimate is calling for weighted per share growth of 7.4%.