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EPS Forecasting. Requires NI and average # of common shares outstanding. Forecasted stock issuance/repurchase implies a change in the # shares. Assume they are issue at end of year, at estimated price P t+1. find P t+1 in
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EPS Forecasting • Requires NI and average # of common shares outstanding. • Forecasted stock issuance/repurchase implies a change in the # shares. • Assume they are issue at end of year, at estimated price Pt+1. • find Pt+1 in • issue/repurchase dollar amount of new equity at Pt+1 to get additional # of shares
getting the right # of shares • when should you adjust your valuation for a stock split? • ans: only when it is after fiscal year end but before valuation date. stock split stock split stock split fiscal year end valuation date http://finance.yahoo.com/q/bc?s=INTC
Intel’s Earnings Torpedo P/E = 53, P/B = 13
Intel Revenue Warning pre warningpost warning
The ROE model profitability growth
constant ROE and growth example if ROE and growth are constant, then P0 high ROE low ROE g
Skinner and Sloan “Don’t let an earnings torpedo sink your portfolio”
Intel First Quarter (2001) Revenue to be Below Expectation SANTA CLARA, Calif., Mar. 8, 2001 - Intel Corporation today announced that first quarter revenue is anticipated to be below the company's previous expectation. The economic slowdown affecting PC demand has continued and spread to the networking, communications and server sectors. The company now expects revenue for the first quarter to be down approximately 25 percent from fourth quarter revenue of $8.7 billion, lower than the previous outlook that first quarter revenue would be down 15 percent, plus or minus several points.
Why is the terminal sales growth 5% in eVal? forecasted real growth for next 10 years is 3% (CBO)
Forecasted inflation is 2% for next 10 years (CBO). 5% terminal growth = 3% real GDP + 2% inflation!
Screening for mis-priced stocks • quantitative screening is common in portfolio analysis • most of the screening variables are backed up by academic evidence • need to control for risk • or, at least, exposure to factors that will make you look dumb. www.valuedog.com
My Intel Inputs • Price approx. $61/share • annual sales growth=21.7% trending to 5% terminal growth over 20 years. • EPS = $1.72/share and Price = $61/share • set SGA and RD margins at best level from 5 year history, then lowered CGS to 35.4%, left the rest unchanged. • now lower sales growth to 19.4% in 2001 and smooth to 5% over 20 years. • implies $3,758,833 stock repurchase. • Price approx. $48/share • annual sales growth = 18.3% trending to 5% terminal growth over 20 years. • Price = $48 and EPS = $1.65 • set margins as in report, zero for depreciation, -.6% for Xord, gets NI of 11.5B. • sales growth = 16.2% in 2001 then trend to 5% over 20 years. • BUT too many shares repurchased, so EPS still off. (MS has 7000 outstanding). Can adjust BS to require more assets, or do a 10% stk dividend (set dilution factor to 2.1).