You are an equity analyst examining a firm that is currently trading at $50/share. The consensus market
Question:
You are an equity analyst examining a firm that is currently trading at $50/share. The consensus market estimates for EPS (Earnings Per Share) for the next two years are $4 next year and $4.59 the year after. You believe these estimates are accurate – along with the average long term growth rate estimate of 2% starting today. Assume all earnings are paid out in dividends.
What is the estimate for the expected stock price for the stock in one year's time?
What is the long term growth rate from the year 2 EPS onwards with the information from above?
You believe that long term growth beginning after next year will continue along the lines of what people believe now rather than changing as the market seems to believe. With this assumption, would you recommend a buy, sell or hold on this stock?
