Biggest of the Big Stocks: The Earnings Outlook

By Walter Hamilton

Oct. 8, 1998 12 AM PT

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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:

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%

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

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

Local and wireless provider expanding into long-distance, eyeing growth in Latin America and Europe.

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

Diverse product line helps shield it from weak global economy. It promises to meet third-quarter profit estimate.

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

Drug issues are favorites in shaky market, but mature products make up big chunk of sales and analysts worry about new-drug pipeline.

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

Planned SunAmerica merger would give insurance leader premium annuity franchise; ongoing global expansion is lucrative but risky.

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

Sales of top drugs remain strong and the beauty-care business is thriving, but that hasn’t helped the stock lately.

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

PC sales are weak and strong U.S. dollar hurts sales numbers, but new mainframe system is promising and tech services business keeps growing.

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

With rising sales and profit margins, the stock of the big drug maker and medical products company has held up well.

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

Pending GTE merger a key to long-term growth; efficient company expanding long-distance share on East Coast.

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

Litigation threat remains, but stock is up 24% in market pullback as investors rush to old-time “defensive” plays.

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

After profit warning last month, old notion about sturdiness of consumer products companies is out the window.

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

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.

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

Warren Buffett is hanging tight, but last month’s profit warning underscored fact that 70% of sales and 75% of earnings come from abroad.

Stock: BankAmerica