Summers Corp. currently has an EPS of $3.60, and the benchmark PE for the compan

ID: 2772680 • Letter: S

Question

Summers Corp. currently has an EPS of $3.60, and the benchmark PE for the company is 35. Earnings are expected to grow at 6 percent per year.

A. What is your estimate of the current stock price?

B. What is the target stock price in one year?

C. Assuming the company pays no dividends, what is the implied return on the company's stock over the next year?

Summers Corp. currently has an EPS of $3.60, and the benchmark PE for the company is 35. Earnings are expected to grow at 6 percent per year.

A. What is your estimate of the current stock price?

B. What is the target stock price in one year?

C. Assuming the company pays no dividends, what is the implied return on the company's stock over the next year?

current stock price =PE*EPS

= 35 * 3.60

= $ 126 per share

B) EPS in one year = 3.60 (1+.06)

= 3.60 * 1.06 = $ 3.816

Target stock price= 35 * 3.816

= $ 133.56

c)Implied return = (price after 1year -current price)/current price

= (133.56 - 126 ) /126

= 7.56 /126

= .06 or 6% (equals to growth rate)

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