Consensus earnings too optimistic as growth stagnates and costs rise

Given the share price carnage seen in mid-cap sectors such as housebuilders, retailers, pub companie...

Given the share price carnage seen in mid-cap sectors such as housebuilders, retailers, pub companies, real estate and media, the key question for investors is whether the worst case scenario is now reflected in valuations. Unfortunately, the biggest certainty is that consensus earnings forecasts remain too optimistic as top-line growth is slowing at a time when raw materials, energy and labour costs are rising. Using numbers from Citigroup Global Markets, the earnings of the FTSE 250 are set to decline by 7.8% in 2008 before recovering 5% in 2009, implying a prospective P/E of 9.4x and...