It’s always worth keeping an eye on the earnings forecasts for your favourite companies, especially if you use forward P/E ratios to gauge when to buy and sell your shares.
If City brokers have been revising their projections recently, your investments may not be as cheap — or as expensive — as you think!
Today I’m looking at the earnings per share (EPS) forecasts for National Grid (LSE: NG) (NYSE: NGG.US). All figures for the company are courtesy of S&P Capital IQ.
Growth
This year’s normalised EPS is 56p, which puts the shares at 750p on a forward P/E of 13.5. And consensus estimates from City analysts suggest that National Grid’s EPS will rise, albeit modestly, to 58p in 2018, pushing the prospective forward P/E down to just under 13.
The data from S&P Capital IQ also indicate that National Grid’s revenue may grow by around 30% over the next five year’s to £18.6bn by 2018. And the company’s EBITDA will rise by over 30%, from 2012’s £5bn to £6.6bn in 2018.
Positive
All in all, the forecasts seem positive. And to put the company’s P/E into perspective, National Grid multiple of 13.5 is below the utility sector average P/E of 14.7 and the 14.8 average P/E of the FTSE 100 index. So, while you certainly couldn’t describe the share as a bargain, it’s arguably slightly undervalued compared to its immediate peers.
But whether these figures make National Grid a buy is, of course, ultimately up to you.
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> Jon owns shares in National Grid.
