In a recent research report, investment bank Ingalls & Snyder, LLC recently revised estimates downward in its electronics manufacturing services (EMS) universe of companies it follows. The same was indicated in the firm’s machinery universe.
The firm stated downward estimate revisions reflect the possibility of a deeper and longer-than-previously-expected U.S. recession and global “growth recession,” both lasting well into 2009.
The investment firm is looking for / between, a 1.0% to 2.0% decline in domestic GDP for year 2009 and zero to 2.0% GDP growth, worldwide.
In most instances, earnings per share estimates for companies the firm follows in both universes are well below the consensus for both 2008 and 2009 calendar years.
The firm believes Wall Street estimates for the companies the firm follows for both 2008 and 2009 are still too high and will be reduced substantially, once September quarter reports begin to come in.
Ingalls & Snyder believes analysts appear to be waiting for revised guidance from companies before lowering their numbers and expects wide ranges for this year’s 4Q and little, if any, guidance for 2009 with anticipation most companies will indicate it is still too early to offer guidance for 2009 and that visibility is poor.
In its report, the investment bank notes this is the third round of lowered estimates for 2008 and it may not be the last in expectation of a recession and subsequent bear market.
Here it comes?
Going into a recession, the firm states it is extremely hard to see ahead. Company earnings estimates depend heavily on how deep and how long the recession is plus, how much of the world it includes.
In a candid note, Ingalls & Snyder’s Alex Blanton states, “To be honest, it is virtually impossible to have confidence in any given set of numbers.” “One can only hope to get the direction right.”
Credit crisis
The report goes on to say, on the negative side, the shortage of credit, which appears more extreme than in past recessions, could hurt more than in previous recessions, depending on how long a credit shortage lasts. This is because projects that are both needed and economically attractive may get pushed out, or cancelled, simply because financing is suddenly not available.
The point being, customers who usually borrow to buy materials / equipment may find themselves unable to do so while other customers may decide to postpone planned investments until the financing system rights itself.
Important suppliers to companies may also have problems financing operations, which could lead to supply chain bottlenecks; delayed deliveries, and expediting and other unusual costs. And so on. The list of possible things that could go wrong in a credit crisis is long.
Looking forward, Ingalls & Snyder, however, anticipates a 2010 worldwide economic recovery beginning late 2009.
Source: Ingalls & Snyder, LLC
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