J P Morgan Downgrades Interpublic’s H1 Earnings Estimate

09 April 2002

Investment bank J P Morgan has downgraded its 2002 first-half revenues estimate for Interpublic Group, the world’s largest agency conglomerate, on the basis that IPG’s first half earnings might fail to meet the bank’s earlier stab at the crystal ball.

JPM’s latest guess – based on an assumption that ad agencies will lose out on the “shift to fee-based revenues” – reduces Interpublic’s first half income by 1.1% year-on-year to $6.65 billion (€7.6bn; £4.65bn). At the same time JPM downgrades its recommendation to investors from ‘buy’ to ‘long term buy’, thus reversing the advice it offered just ten weeks previously.

The bank now estimates IPG’s earnings-per-share for this year at $1.49 against its previous surmise of $1.55. Even at the lower figure, however, EPS is 11% higher than in 2001. But the stock market reacted in its usual Pavlovian fashion, with Interpublic shares closing on Monday 2.62% down (minus 87 cents) at $32.33.

For some onlookers, witnessing the storm clouds now gathering around the entrail-rakers at Merrill Lynch & Co, it beggars belief that investors continue to heed Wall Street’s investment prognostications

New York ‘s attorney-general Eliot Spitzer yesterday referred to a raft of internal emails from within the Thundering Herd uncovered by a ten-month investigation by his office. These allegedly prove that Merrill analysts promoted struggling technology companies in which they had no faith while the bank earned fees by selling stock in those firms.

According to the Washington Post, Merrill Lynch internet analysts including the famed Henry Blodget (who received a $12m pittance in 2001 for his impartial advice) circulated rose-hued reports about companies that would later crash, while privately deriding the stocks to one another in such erudite language as “a piece of crap”.

Back last summer, prior to the Merrill Lynch investigation, WAMN referred [18-Jul-01] to an adman of its acquaintance, “a self-confessed Candide, who had noted that the unsolicited predictions of these fiscal seers trigger much buying and selling on the stock markets. As shares constantly soar or slide, who, he wonders, profits from all this unceasing activity?”

Data sourced from: The Washington Post Online and BrandRepublic (UK); additional content by WARC staff