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Forward Looking Earnings on the PERT

Forward Looking Earnings on the PERT. Selecting the right earnings. Factual. Forward Looking. PERT has two parts. 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.

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Forward Looking Earnings on the PERT

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  1. Forward Looking Earnings on the PERT Selecting the right earnings

  2. Factual Forward Looking PERT has two parts

  3. 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?

  4. 8% Example – Johnson & Johnson • Last 4 quarters eps • Growth rate .97 + .67 + .78 + .82 = 3.24 3.24 x 1.08 = 3.499 Estimated EPS for the next 4 quarters = $3.50

  5. 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.

  6. 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.

  7. On the left side Under Free Market Tools Select Stock & Fund listings http://online.barrons.com

  8. http://online.barrons.com Select the correct stock exchange and then select the first letter of the company name.

  9. http://online.barrons.com For ACS, Barron’s estimates $3.41 for the next four quarters.

  10. 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.

  11. EPS Projections

  12. 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.

  13. PERT Select Preferences in the Options Tab Check the Enable Advanced PERT Estimates

  14. PERT Under Options select Enter Estimated EPS. Then Select Company Select User Type in User Estimated EPS

  15. 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

  16. 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

  17. 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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