It seems that current TMT valuation levels are making the shares more attractive to investors. Some previously sceptical investors are taking a more positive outlook.
According to an IBES consensus of analyst estimates the information technology (IT) sector should see 60% earnings per share (EPS) growth in 2003. The consensus for telecommunication services is 179% EPS growth.
It is not s
urprising that EPS growth is expected to rise, as recent valuation levels have been low. But investors have to be wary.
For instance, in its "2003 Market Outlook" analysts from Salomon Smith Barney (SSB) noted that most of the recent top performers in the IT area were companies that had really "ugly" performance in the last 12 months. SSB remains underweight in the software and service sector and neutral in the hardware sector.
On the telecoms front, the markets reacted positively to the ability of operators to reduce their expenses and maintain their margin ratios. But while wireless operators experienced market growth, fixed-line operators have to deal with a mature market providing almost no growth.
Investors still need to remain cautious when making a bet on the TMT sector. The recent global rebound is in large part due to the improvements on the shares’ previously poor valuation levels.
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