Analysts Turning Up the Volume on ‘Whisper’ Numbers

In a testament to how silly the earnings game is getting, some Wall Street analysts are now shouting their “whisper” numbers.

Jay Deahna of Morgan Stanley Dean Witter & Co. told clients Friday that Applied Materials Inc. (ticker symbol: AMAT) is likely to beat his earnings estimate of 54 cents a share by a least 5 cents--though he didn’t raise his forecast.

Stuart Linde of Lehman Bros. Inc. alerted his clients to a “trading opportunity” in casino operator Mandalay Resort Group (MBG) because the company could top his 38-cent forecast by 20% when it reports on May 18. He, too, kept his estimate unchanged.

If the analysts, who didn’t return calls seeking comment, are right, both companies will be credited with surprisingly strong earnings.

“We’ve seen it a few times this earnings season, analysts just blatantly” announcing whisper numbers, said Joe Cooper, a research analyst at First Call/Thomson Financial, which tracks profit forecasts. “Why not just raise your estimate? There’s no excuse.”

“Whisper” numbers typically emerge at the end of a quarter, as analysts fine-tune their forecasts or, in some cases, companies tell analysts their forecasts are too low. Rather than discreetly communicating the news to their favored clients, some analysts now are increasingly willing to publish their whisper numbers, investors say.

Whisper numbers also are derived from semianonymous--and not always reliable--Internet postings by individual investors and people supposedly in the know.

Many portfolio managers use earnings surprises as an investment criterion, betting that companies that consistently beat Wall Street forecasts will be good investments. Others say the machinations behind “surprises” make that data less useful than ever.

“The game has gotten silly,” said Charles Carlson, co-manager of the $145-million Strong Dow 30 Value Fund. “Analysts want to be more conservative; they don’t want to necessarily get sandbagged by having a company do worse” than forecast.

Carlson said earnings estimate revision data--when analysts actually change their published forecast--are better than tracking surprises to find stocks likely to rally.

Applied Materials, the Santa Clara, Calif., maker of equipment used to produce semiconductors, will report earnings Wednesday. The average analyst estimate, according to First Call, is 55 cents a share, slightly above Deahna’s official forecast.

Chip makers are asking for faster deliveries of new equipment, and demand has picked up in the past 90 days, wrote Deahna, who rates the stock “strong buy.”

Linde rates Mandalay--formerly known as Circus Circus--”neutral,” though he expects a rally after the May 18 earnings report. The company has bought back more than 12 million shares since December, which should push up profit per share, and business in Las Vegas is robust, he said.

His official prediction of 38 cents a share matches the average estimate of the 16 analysts surveyed by First Call. But Linde said the actual number could match the 45-cent forecasts of the so-called Lone Rangers--the analysts with the highest estimates.

They’re “Lone Rangers” because analysts generally are reluctant to have a forecast that is at the high or low end of the spectrum, said Carlson, who hadn’t seen Linde’s or Deahna’s reports. “There’s safety in the consensus, and you don’t want to be the only outlier out there,” he said.

So how are companies doing in “surprising” Wall Street? In the first quarter, 73% have reported profit above the average forecast, versus an average of 56% over the last five years, according to First Call.

Said Carlson: “The number of earnings surprises has grown so dramatically, earnings surprise is almost an oxymoron now.”