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.
You never know, if City brokers have been revising their projections of late, your investments may not be as cheap — or expensive — as you think!
Today I’m looking at the earnings per share (EPS) forecasts for Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US), the FTSE 100 bank. All my figures are courtesy of S&P Capital IQ.
The consensus for 2013 is for underlying EPS of 18p, which puts the 335p shares on a punchy forward P/E of 19.
However, the estimates suggest earnings may rally to 30p per share for 2014 and advance further to 36p for 2015, at least according to City analysts.
The latter projection places the shares on a P/E of 10.
The data from S&P Capital IQ also indicates total income at RBS may stall around the £20bn mark and EBITDA stagnate at about £10bn during the next few years.
All told, the forecasts seem optimistic, with pre-exceptional earnings essentially predicted to double between 2013 and 2015. But then again, that near-term P/E of 19 looks like the market is already expecting earnings will advance quickly quite soon.
Whether these projections make RBS a buy, a hold or a sell is of course something only you can decide. To put the company’s multiple into perspective, the FTSE 100 at 6,441 trades on a P/E of 14.7.
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> Maynard does not own any share mentioned in this article.
