Options Expensing Impact
The National Center for Employee Ownership cites several studies which indicate that the impact of Options Expensing will be minimal.
Forbes thinks Tech earnings will be halved with a median earnings hit of 20% in 2005 and 18% in 2006 if all options are expensed.
Merrill Lynch said "We continue to believe there may be an opportunity to earn positive returns by overweighting less-exposed names and underweighting (or shorting) tech companies expected to suffer substantial earnings-per-share reduction,"
Bear Stearns did an impact assessment on SP500 and Nasdaq 100 companies 2004 earnings.
Standard & Poors estimates a 4.2% drop in earnings and an 18% drop in Information Technology company revenues in their impact assessment.
The Bear Stearns and S&P assessments are very scary reading when one considers the growing difference between GAAP and Pro Forma numbers. This divergent new math is being tracked by the S&P in the form of "GAAP differential growth".
The AP has commented on the Pro Forma "new math" and GAAP "gappers" in Creative Accounting leads to Fuzzy Earnings.
Merrill Lynch's U.S. Strategist Richard Bernstein did the math on 1,600 stocks and found total earnings for their third calendar quarter grew 22 percent on a GAAP basis, but 31 percent on a pro forma basis.
He calls for an end to pro forma earnings, saying they have made U.S. corporate earnings perhaps the most opaque they've been in his 23 years in the business.
One prime example of a large gap between GAAP and Pro Forma numbers will be Teradyne; reporting after close Tues 17th.
In 2004, Teradyne reported EPS of 0.84, pro-forma EPS after stock options expensing would have been 0.37. Thats a 56% drop in earnings per share and in 2005, Teradyne still has a 56% stock options cost to operating revenue ratio.
Teradynes Q3 results announcement contains no mention of existing or pending stock options expensing.
I guess we will find out the impact starting next week. The big question is will investors pay attention or even care?
Forbes thinks Tech earnings will be halved with a median earnings hit of 20% in 2005 and 18% in 2006 if all options are expensed.
Merrill Lynch said "We continue to believe there may be an opportunity to earn positive returns by overweighting less-exposed names and underweighting (or shorting) tech companies expected to suffer substantial earnings-per-share reduction,"
Bear Stearns did an impact assessment on SP500 and Nasdaq 100 companies 2004 earnings.
Standard & Poors estimates a 4.2% drop in earnings and an 18% drop in Information Technology company revenues in their impact assessment.
The Bear Stearns and S&P assessments are very scary reading when one considers the growing difference between GAAP and Pro Forma numbers. This divergent new math is being tracked by the S&P in the form of "GAAP differential growth".
The AP has commented on the Pro Forma "new math" and GAAP "gappers" in Creative Accounting leads to Fuzzy Earnings.
Merrill Lynch's U.S. Strategist Richard Bernstein did the math on 1,600 stocks and found total earnings for their third calendar quarter grew 22 percent on a GAAP basis, but 31 percent on a pro forma basis.
He calls for an end to pro forma earnings, saying they have made U.S. corporate earnings perhaps the most opaque they've been in his 23 years in the business.
One prime example of a large gap between GAAP and Pro Forma numbers will be Teradyne; reporting after close Tues 17th.
In 2004, Teradyne reported EPS of 0.84, pro-forma EPS after stock options expensing would have been 0.37. Thats a 56% drop in earnings per share and in 2005, Teradyne still has a 56% stock options cost to operating revenue ratio.
Teradynes Q3 results announcement contains no mention of existing or pending stock options expensing.
I guess we will find out the impact starting next week. The big question is will investors pay attention or even care?
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