Wall St estimates still excessively high -study

By Caroline Valetkevitch

NEW YORK (Reuters) - Wall Street analysts, keen to please employers intent on winning business, continue to overstate expected corporate earnings growth, even as concerns about the U.S. economy mount, a study said on Thursday.

The findings of the study by finance professors at Penn State University come five years after 10 Wall Street firms agreed to pay $1.4 billion to settle charges that they issued biased research in order to win investment banking business.

The study, however, found that the investigation into biased research spearheaded by then-New York Attorney General Eliot Spitzer and the resulting fines had no effect on analysts' growth-rate forecasts.

"Analysts are rewarded for biased forecasts by their employers who want them to hype stocks so that the brokerage house can garner trading commissions and win underwriting deals," the study says.

According to the study, U.S. earnings forecasts are excessively high, at two times historic gross domestic product growth.

The study's authors examined analysts' long-term and one-year projected annual profit forecasts for all companies from 1984 to 2006.

Their findings show that analysts consistently projected earnings per share growth rates much higher than actual growth and that firms rarely meet or exceed their projected profit estimates.

Gross domestic product growth over the past 40 years has averaged 7.4 percent annually, while long-term, or on a three- to five-year basis, growth in earnings per share was forecast at 14.7 percent on average from 1984 to 2006, the study shows.