When weighing up a potential investment, we always need to look forward rather than backwards. If you buy a stake in a business, it’s the future profits that count — and the stock market will value your shares based on future expectations.
With that in mind, it can be helpful to review what expert City analysts are expecting a company to earn in the coming years. These expectations can be compared to the share price, to give you a better idea of how the stock market is valuing the business.
Today I’m looking at the earnings per share (EPS) forecasts for Prudential (LSE: PRU) (NYSE: PUK.US), the FTSE 100 insurance giant. All my figures are courtesy of S&P Capital IQ.
Analysts expect Prudential’s profits to be 82p per share in the coming year. This estimate means that, compared to today’s share price of 1,089p, the market is valuing Prudential’s shares on a forward price-to-earnings multiple of 13.3.
Looking ahead, the consensus then calls for Prudential’s earnings to grow to 91p per share for 2014 before climbing to 102 pence in 2015. The data also indicates Prudential’s revenues might grow by an impressive 16% a year over the same time period, from £27bn to over £42bn.
Both the source of Prudential’s potential future growth, and the recent volatility in its share price, relate to the company’s exposure to international growth markets in Asia. So is Prudential’s emerging market exposure a reason to invest, or a reason to ignore the company?
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> Mark does not own any shares in this article.
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