Wall Street Analysts–Nobody Knows What the Hell They’re Doing, But the Pay is Great

Just a week ago, Intel (the chip-maker) posted quarterly earnings that
shattered all company records for profitability and growth. Intel’s
reward was to lose 12.5% of its stock value.

Just a week ago, Intel (the chip-maker) posted quarterly earnings that
shattered all company records for profitability and growth. Intel’s
reward was to lose 12.5% of its stock value.
Recently I wrote a piece
about three other quarterly reports; two of them in the dumper and one
doing OK. Guess what? The Dow rose 171 points on the basis of nothing
more substantial than investors desperation for something to cling to
in the rising waters of national economic disaster.

SAN FRANCISCO (AP Jan 16, 02) — Intel Stock Hammered on Economy Fears–Shares
of Intel Corp. fell more than 12 percent Wednesday, a day after the
world’s largest chip maker reported disappointing fourth-quarter
results that investors saw as a sign the company is more vulnerable to
U.S. economic pressures than many investors had believed.

God, a quick look at that headline would send most investors to their
broker to dump Intel before it tanks. What on earth could have so
spooked the pundits that they got all twitchy and disappointed?

  • True, Intel had $10.71 billion in sales during the latest quarter, which was an 11 percent increase from the period a year earlier—a sure sign of weakness
  • There’s no denying they posted a profit of $2.27 billion for the
    three months ended Dec. 29 and management apologizes that, compared
    with $1.5 billion during the same period a year earlier, profits are up only 50%–pretty shaky
  • Embarrassingly, gross profit margin (gauged by how well a company
    manages pricing and manufacturing costs) came in at 58.1 percent of
    revenues—apologies are due for the increase.

So, if I have this straight, in a market where things are going to hell everywhere you look, Intel lost about an eighth of its value because the best numbers in company history were not good enough for the experts from this or that investment firm.
The same guys who were out to lunch or on a yacht with their
girlfriend, while their own employers swindled their way to the worst
economic disaster of this young century, devalued a worthy firm because
it missed their Ouija-board projections by two cents. These geniuses had Intel marked down for a forty cent dividend and got thirty-eight instead.

The increase was driven by higher sales and lower costs of producing chips.

is ahead of its rival Advanced Micro Devices Inc. in moving to the
latest generation of chip technology, which helped Intel drive down the
cost of producing its chips while making them more powerful.

Certainly no one can be actually paying these analyst guys for that
kind of advice. Punishing a company 12.5% for missing the dividend by
4% seems a little harsh, when they cost their employers tens of
billions for missing a sub-prime fraud crash that everyone with eyes
could see coming. Certainly these bozos can’t be making more than
minimum wage. Read on . . .

Colarusso) Being a Wall Street analyst these days is a lot like being
in the NBA: Even the guys at the end of the bench are living large.

bull market, the unprecedented interest in initial public offerings and
CNBC celebrity status have driven the market for sell-side analysts who
help the top firms hold institutional clients and bring in new
underwriting deals. Over the past two years, fresh-faced newcomers to
Wall Street became overnight sensations, covering the explosion of New
Economy issues and pulling down seven-figure paychecks. Established
analysts could land multiyear contracts with huge guaranteed bonuses.

tales abound. In 1999, Credit Suisse First Boston telecom analyst Frank
Governali got a two-year, $14 million package to join Goldman Sachs.
Pricey? Sure, but it was a lot less than the Shaq-like $24 million deal
it took Salomon Smith Barney to keep famous telecom analyst Jack
Grubman from jumping to Goldman.

No. Tell me it isn’t so.
Citigroup wrote off $24 billion and plans to let 24,000 employees go. That’s a million bucks a throw for back-office folks. Does anyone explain how a company functions
after letting 24,000 employees take a hike? What the hell were these
people doing on a Monday that will not be required of them on a Friday?
In the Back-to-the-Future department, here’s a little tidbit from Business Wire;

OAKS, Calif. — Lewis S. Alexander, chief economist and head of Citi’s
Economic and Market Analysis (EMA) department, will discuss national
economic trends at the 2007 San Fernando Valley Economic Summit,
co-presented by the Economic Alliance of the San Fernando Valley and
California State University Northridge. The Summit will be held on
Thursday, May 17, 2007 from 7:30 a.m. to 1:30 p.m. at the Sheraton
Universal Hotel in Universal City.

It will also feature video
game pioneer Nolan Bushnell, CEO and founder of uWink, Inc., who will
address entertainment technology and creativity in the 21st century and
its significant presence and impact on the Valley region.

You can make the case that the SFV Economic Summit had the wrong guy heading the billing. Entertainment technology and creativity in the 21st century
was far more the name of the game than mortgage-lending in the run-up
to the Wall Street boys getting caught with their pants around their
ankles. Send Nolan up with his fastball.
Onstage, killer-hair and all, Lew Alexander suggested in his outlook summary for the country (parentheticals mine);

  • Looking forward, we expect the drag from the housing sector to
    dissipate allowing the economy to move back toward trend growth. (Dissipate? Trend growth? Do those terms come with definitions?)
  • The correction in the U.S. housing sector is ongoing, however, and
    it continues to be the most significant source of uncertainty in the
    U.S. outlook.
  • The economic and financial context should help limit its broader impact (read that ‘six months to impact’):
  • The rest of the global economy continues to do well. (Snake oil)
  • Financial conditions are supportive for the U.S. economy overall. (Missed kinda big on that one)
  • The economic backdrop is actually reasonably supportive for housing. (Trying to stave off a Citigroup meltdown)
  • Consumers’ financial position is strong. (Wrong—only rhymes with strong)
  • The financial system is well positioned to handle the strains from losses in the mortgage market. (Like Dunkirk was well positioned for evacuation)
  • Inflation should moderate giving the Fed flexibility. (Flexible, as in drop rates and print money)
  • Until the housing market clears, material downside risks will persist. (You got that one Lew)

How much do they pay you for this, Lew? That much and a golden parachute and a stock-options deal and deferred retirement? All while your company goes down the tube?
Meanwhile, back in the real world, the place where they actually make
something of value instead of skinning an imaginary rabbit;

the full fiscal year, Intel reported net income of $6.98 billion, or
$1.18 per share, up 38 percent from 2006. Annual revenue rose 8 percent
to $38.33 billion. In the first quarter, Intel expects revenue between
$9.4 billion and $10 billion, in the lower end of the range analysts
were expecting. Gross profit margin is expected to be 56 percent of
revenues, plus or minus a couple percentage points.

scenario Citigroup can only dream of. There has been no $24 billion
loss at Intel, no co-conspiracy in fraud, no enormous loss of jobs, no
impending scandal that would bring the American and world economy to
its knees.
Just a great year, with a great year to come unless the over-paid and under-trustworthy analysts get in the way.
Oh, and California Pizza Kitchen Inc. fell $2.08, or 17
percent, to $10.19 after the gourmet pizza chain reduced its fourth
quarter and fiscal 2008 forecasts, citing lower spending by diners.
Go figure.
Media comment;

3 thoughts on “Wall Street Analysts–Nobody Knows What the Hell They’re Doing, But the Pay is Great

  1. Loved this article. Explains my thoughts exactly. I think Intel is doing great. It's strange that their stock price is below what it was when AMD was actually a threat. I imagine with Apple getting hammered today, Intel will drop a little lower. I plan on starting to accumulate. I just read that they only have 15 billion in cash. Wow, what a disappointment. They are really hurting.

  2. It has always been easier to tear something down than to actually go out there and produce it. If Intel does not like the stock price as is, the company should use the extra cash and buy back shares. Reduce the shares out floating around and the stock will come back sound.

  3. The question, of course, is what you people on Wall Street have 'produced.'
    Seems mostly like chaos and fraud, juiced by the HBS model of 'anything for the quarterly' profit, to which you have now conveniently added;
    "Congratulations on the record earnings and profits, but if you disappoint our 'analysts expectations' we'll kick your ass."
    Analyst projections are important for those who have no ability to judge corporate worth without a guide.
    And you call all that claptrap 'building something.'

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