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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (4959)	8/19/1999 10:55:00 PM
From: Mike Buckley	Read Replies (1) \| Respond to of 54805

Lindy, When using trailing PE, it's better to rely on the PE excluding one-time accounting events instead of the PE that most data feeds plop on your monitor. The trailing EPS excluding one-time events from most distant to most recent are $.27, $.32, $.41 and $.75, totalling $1.75. Using a price of $165, that PE is 94, a far cry from your 147. As I see it, there is a flaw in your analysis which uses a PE of 147 on future earnings. The flaw is that your future earnings are based on a starting point of pro forma earnings though your PE is based on earnings that aren't pro forma. In other words, you're mixing your type of PE with your type of earnings base. Because Q has been so good about giving us pro forma earnings, I would ammend my comment about the trailing PE to say that in the Q's case our trailing PE should be based on EPS excluding one-time charges in the first two quarters and pro forma EPS in the last two quarters. Doing that, we have $.27, $.32, $.60 and $.86, adding up to $2.05. Again using $165 as the price, that PE is 80. Having established a PE in a manner consistent with the way you established future earnings, let's apply that PE of 80 to your estimates. On 9.48 earnings, 80PE times 9.48 earnings = $758 price, with a market cap of $121 billion. On 5.85 earnings, 80PE times 5.85 earnings = $468 price, with a market cap of $75 billion. I also think it's a flaw to think that the market will apply the same multiple to an EPS of $9.48 and $5.85. The two EPS imply completely different growth rates which will probably result in very different multiples. --Mike Buckley