Fading Operational Leverage

- Sluggish Global Economic Recovery — "The global economic recovery continues to disappoint. Lead indicators are softer and economists are lowering expectations."
- Sharp Global Profits Recovery — "But the profits recovery has been sharp. Analysts have upgraded forecasts as many underestimated the rebound in revenues and the effects of operational leverage."
- High Margins — "We expect profit margins to be approaching peak levels over the next 2 years. Continued cost control suggests they are sustainable even as the economic backdrop is sluggish."
- Accretion Kicks In — "Operational leverage will fade as we progress through the cycle. But EPS accretion should kick in. We expect many companies to retire expensive equity with cheap credit."
- Stock Analysts Closer Than The Market — "We forecast global non-financial EPS growth of 12% in 2011 and 9% in 2012. While analysts’ estimates seem too high, they are closer to our forecasts than the market appears to be pricing in. We believe analysts need to cut expectations a little, the market needs to raise them."


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