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.
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.
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.
Top-quality share selections
National Grid is actually one of the companies featured in the Motley Fool special report “5 Shares To Retire On“, along with four other quality companies for the long-term — companies that have an outstanding record of providing reliable shareholder returns.
> Jon owns shares in National Grid.
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