UBS’s Palma Sees Earnings Decline in 2008, Weak 2009 Rebound

By Patrick Rial

Nov. 17 (Bloomberg) -- Corporate earnings may drop this year and recover less in 2009 than previously forecast as economies worldwide deteriorate, according to Jeffrey Palma, head of global equity strategy at UBS AG.

Company profits may fall 5.9 percent this year and rebound 4 percent in 2009, Palma wrote in a report surveying UBS analysts’ estimates. Earlier this year, UBS projected that profit would climb 10 percent in 2009.

“The macroeconomic and market landscape has deteriorated markedly recently,” the strategist wrote in a note to clients dated Nov. 14. “Across the board, revisions have been negative.”

The valuation of global stocks remains a positive factor in spite of the dismal earnings outlook, as various metrics have fallen below historical averages, Palma wrote. Stocks covered by UBS are valued at 9.9 times estimated 2009 earnings, a “cheap” level, he wrote, while cautioning that the forecasts for earnings may be cut further. Shares are at 1.5 times book value, the lowest since 1984.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net