The Earnings Calibration Model is a momentum-based stock selection model that calibrates a company’s future stock price movements with the expected growth rate in the company’s EPS. The Model is an “equilibrium” model that assumes a state in which market sentiment and supply and demand are in balance and, as a result, price multiples are stabilized. This means that stock prices are set as a function of earnings and earnings growth, not multiplier expansion or contraction.
Publication Length (Number of Pages)
- Dow Jones Industrial Average (38 pages)
- S&P/TSX 60 (68 pages)
- S&P 500 (518 pages)
Introduced in 2013, SEENSCO’s Earnings Calibration Model has been successful in predicting near-term stock price performance, primarily because it over-weighs the influences of changing earnings momentum on stock price performance. The model utilizes some complex mathematics, known as regression analysis, which helps to measure the acceleration or deceleration in the change in earnings. Trend lines which best fit a company’s trailing 12 month earnings per share for the past 6 quarter, 3 year and 5 year periods are calculated and extrapolated forward 2 years. Trend in the company’s trailing 12 month earnings series for the last 10, 15, and 20 years is also calculated and extrapolated forward, which together with the short term trend lines measures changes in series curvature. To standardize the calculation, a weighted moving average of the series trend lines is calculated, which produces an implied growth rate in earnings, otherwise known as the rate of calibration. The rate of calibration is used to extrapolate the company’s stock price forward 8 quarters, providing an indication of the return potential inherent in the company’s stock.
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Price Tracking in Excel
Target price estimates and valuation ranges for all companies covered in the S&P 500 are available online, with monthly price refreshes, and are downloadable in Excel spreadsheet format under license from SEENSCO. The spreadsheet service is available with one-year subscriptions and is accessible via your online accounts. This service allows for up-to-date monitoring of return potential expectations.
*Technical Note: Once subscribed, new menu tabs will appear on the main menu toolbar under “Price Tracking” allowing you access to the Excel-based spreadsheet service.
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