Friday, January 23, 2009

GE and the decline of Earnings Guidance

As I am trying to price a sell range for GE in the 3 to 9 month time frame, I'm reminded of the fact that GE recently decided to stop giving earnings guidance. This not uncommon as managers of companies usually hate giving earnings guidance ("I'll manage the company... You manage the stock expectation.").

Here are some great articles on the matter:

Why GE Should Never Give Earnings Guidance Again

General Electric discontinues quarterly earnings guidance

These articles make some good points. However, even if guidance is not given, analysts should still continue to provide guidance of their own based on MD&A and their own analysis. PE ratios as a model requires earnings and has a solid grounding in as a method of valuation.

But beyond "just making the numbers", more important is why they are plus or minus expected EPS and the repercussions on long term business profitability.

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