Forward Looking Earnings on the PERT
Selecting the right earnings
PERT has two parts
Factual
Forward
Looking
Estimated EPS
Estimated EPS is crucial to having a useful PERT.
The default number is the last four quarters of real earnings multiplied by your projected growth rate.
But is this the best number to use?
Last 4 quarters eps
Growth rate
Example – Johnson & Johnson
8%
.97 + .67 + .78 + .82 = 3.24
3.24 x 1.08 = 3.499
Estimated EPS for the next 4 quarters = $3.50
PERT Forward looking section is only as
good as the estimated Earnings Per Share.
The SSG does not take into account things that have happened recently that could affect future earnings.•Changes in the economy (cyclical)
•Changes in the company
•ADRs that only report earnings once a year Your projections are for five years, the
PERT is looking at next year.
Forward Looking EPS
Check your estimated EPS with the analysts.
The analysts’ next four quarters projections are usually fairly accurate.
Wall Street does not like surprises.•Companies will give a warning if they
anticipate lower earnings.
http://online.barrons.com
On the left side
Under Free Market Tools
Select Stock & Fund listings
http://online.barrons.com
Select the correct stock exchange and then select the first letter of the company name.
http://online.barrons.com
For ACS, Barron’s estimates $3.41 for the next four quarters.
Comparing EPS Projections
If the two projections are about the same keep yours.
If your projection is more than fifteen or twenty cents higher, switch to the Barron’s number.
If your projection is lower, use your judgment.
EPS Projections
Changing the Projected EPS
You may not want to change your five year projection on the front of the SSG.
Adjusting the short term next year’s projection is an option.
PERT
Select Preferences in the Options Tab
Check the Enable Advanced PERT Estimates
PERT
Under Options select
Enter Estimated EPS.
Then Select Company
Select User
Type in User Estimated EPS
What Changes with New Earnings
Current P/E (which is forward looking) increases.
Relative Value increases. P/E as a % of Growth Rate increases. Projected high price decreases.
U/S D/S Ratio decreases. Compounded Rate of Return decreases
Analysts Estimates in Software
The analyst estimates that Toolkit imports into your software represent the average annual growth rate expected for earnings for the next five years.
Do not use that number. Either use your own five year projection or a one year analysts projection
Conclusion The PERT is an important portfolio
management tool. PERT uses a one year forward
looking earnings estimate for the numbers on the right hand side.
You want this number to accurately reflect the best estimate.
Deciding what is the best estimate requires some judgment.
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