Goldman Sachs cut the Q3 EPS estimates on Charles Schwab (SCH ) Morgan Stanley Dean Witter (MWD ) and Lehman Brothers (LEH ).
Analyst Richard Strauss says brokerage fundamentals remain in the doldrums but valuations are improving. Stocks are now 35% off their highs, and last time the group was cheaper occurred when it dipped below two times the book value, hitting 1.8 times the book price during the severe emerging markets crisis in the fall of 1998.
Still, Strauss says he'd only nibble at these levels as there is still no change in fundamentals. He lowered his $0.08 Q3 EPS estimate for Schwab to $0.07, cut the $0.70 Morgan Stanley estimate to $0.60, and trimmed the $1.15 Lehman to $1.05.
Strauss says the industry is trading at a "reasonable" 12.4 times 2002's EPS, however, whether the earnings of the three brokers can rebound by 30% next year is mostly guesswork.