Pfizer’s integration of the Wyeth operations has probably yielded most of the anticipated cost savings. New management may attempt to cut expenses even further, although opportunities seem limited. The headwind that faces Pfizer and its peers will not go away. The big pharma company has too many important drugs losing patent protection, and too few new drugs which have obtained, or are about to get, FDA approval.
Wall Street’s anticipation of improved earnings for Apple are probably the greatest among for anylarge publicly traded companies in America. Nearly every week, a research house increases its price target in Apple. Some of these projections are near $500, while Apple’s current stock price is $332. The extent to which Apple will hit its sales and earnings targets depends much more on the units of Macs, iPods, iPads, and iPhones shipped than on cost control. The company has a history of managing its gross margins well.
There are probably more risks in the Bank of America forecast than for most other major money center banks. The buyout of Countrywide could still trigger large losses. The bank’s recent settlement with Fannie Mae and Freddie Mac may only be the beginning of a costly process. The firm has ongoing exposure in its real estate portfolio. Bank of America does not have particularly robust investment banking operations to offset weaknesses in its retail and corporate bank operations.
IBM has recently made a substantial part of its profits from its software and services divisions. Its ability to show growth in these business units will depend to a great extent on a recovery of IT spending. That recovery is expected to be uneven and will probably improve in Asia more quickly than in the developed countries. IBM will continue to face pressure in its hardware businesses as competition with other large multinational technology companies, like Hewlett-Packard (NYSE: HPQ) and Oracle (NASDAQ: ORCL), grows.
The expectations for Wells Fargo’s earnings improvements in 2011 are based heavily on its mortgage banking operation. Losses, defaults, and foreclosures could worsen as housing prices drop through the year. If the government does not intervene with tax credits or other incentives the slide could continue into 2012. The bank has only modest institutional and investment banking businesses, certainly not enough to counter severe problems in retail and mortgage operations.
More than any other company in America, Wal-Mart is up against the risks of its size. Its ability to grow significantly in the United States will depend on its success in opening stores in urban markets where its expansion has traditionally been blocked. Wal-Mart will also try to get into other mass retail businesses, including grocery sales, but these initiatives are not large enough to have a significant effect on 2011 numbers. Wal-Mart’s real growth prospects remain in its operations overseas, particularly in China and Mexico. The company has flopped in large markets such as Korea and Germany. It hopes that its efforts in India and Russia will be more successful. It is unlikely that share buybacks and dividend actions will matter to investors.
Charles B. Stockdale, Douglas A. McIntyre