Sticker Price Confusion -- PE

[Charlie Golf]

Hi all,

I'm pretty new to all this and am trying to get over a minor hurdle as I'm starting my paper trading.

I'm a little confused when it comes to determining the estimated future PE. I'm getting all my numbers from MSN Money, using Phil's calculators and comparing information with output from stock2own.com

I'll try and show the process that I'm using and hopefully someone can point out any errors or omissions I'm making.

I'm using T Rowe Price (TROW) as one of my "practice" companies.

1. Current EPS = 2.40

2. Estimate EPS Growth Rate = 15.16% (work shown below)
MSN & Rule 1 calculators:
[MSN: Financial Results > Key Ratios > Ten Year Summary]

Newest BVPS (12/07) = $10.50
Oldest BVPS (12/98) = $2.56
Rule 1 Calculator = +15.16%

Analyst Estimates:
[MSN: Earnings Estimates > Earnings Growth Rates]

Next 5 Years = +17.30%

3. Estimated Future PE = 27.05
Default PE = 30.32
2 X Estimated EPS Growth

Historical (Average) PE = 27.05
[MSN: Financial Results > Key Ratios > Price Ratios]
PE Ratio 5-Year Hi = 35.4
PE Ratio 5-Year Lo = 18.7
Average = 27.05

So, plugging these numbers into the Rule 1 Calculators yields the following:

Future EPS = $9.85

Future Value = $266.44

Sticker Price = $65.86

MOS Price = $32.93

Does that look about right? I guess my confusion arises from the fact that the numbers generated by stock2own.com are different -- sometimes only marginally and sometimes drastically. I don’t know if this is because I’m doing something wrong or just a variation in methodology.

I am also confused by the reference to Future PEs in excess of 50. It seems like when this is the case, stock2own.com uses as PE almost 50% less than either the Default or Historical PEs that I’ve come up with. Any clues?

TIA

[tombrown1]

Nice work Charlie. Some advice:

You want to find the average PE for each of the last 10 years. Then average out those 10 numbers. Phil tells you how to find these numbers in the book - they're easy to find on msn.

For the PE it can be helpful to look up 10 years of PE's in three different ways. Look up the average for each year, the high for each year, and the low for each year. This gives you a very good picture of how volatile the company is.

The info can be found very easily at www.advfn.com.

For the analysts' estimated eps growth rate:
Check out this page:
ClearStation : News Articles
This tells you the number of analysts estimating the 5-year rate, the high, the low, and the mean. In this case there are only 2 analysts guessing this number - but their numbers aren't that far off.

At an initial glance I would put their MOS around $26.40 with EPS growth rate at 15% and future PE of 22.

[tombrown1]

If anybody knows how to show a picture of an excel file I can show you the analysis I did of TROW late last year.

I just can't get the website to attach an excel file.

[vikefan52]

Charlie,

I noticed you used 10 years as the age of the equity to come up with 15.16% as an Estimated EPS Growth rate using Phil's calculator. The number you should use for age of equity is actually 9 ('98-'07). Plugging this into the calculator will spit out a little higher number. In this case, it is 16.98%.

[Charlie Golf]

Originally Posted by vikefan52

Charlie,

I noticed you used 10 years as the age of the equity to come up with 15.16% as an Estimated EPS Growth rate using Phil's calculator. The number you should use for age of equity is actually 9 ('98-'07). Plugging this into the calculator will spit out a little higher number. In this case, it is 16.98%.

I was wondering about that.

So I should use "gaps" in numbers vs. just how many numbers I'm using?

07 - 1
06 - 2
05 - 3
04 - 4
03 - 5
02 - 6
01 - 7
00 - 8
99 - 9
98 - 10

[vikefan52]

Yes, Charlie. The total span of time between them is 9 years. This is explained on Phil's Rule #1 calculators.

[npg]

You need to treat it like this

07 - 0
06 - 1
05 - 2
04 - 3
03 - 4
02 - 5
01 - 6
00 - 7
99 - 8
98 - 9

[Charlie Golf]

Originally Posted by npg

You need to treat it like this

07 - 0
06 - 1
05 - 2
04 - 3
03 - 4
02 - 5
01 - 6
00 - 7
99 - 8
98 - 9

Got it. Thanks!