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Ridgeway Construction has an EPS of $5.46. If the earnings are expected to grow at 4.5%...

Ridgeway Construction has an EPS of $5.46. If the earnings are expected to grow at 4.5% per year and the benchmark PE for the company is 18. What is estimated current stock price? What should the target stock price be in three years?

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Answer #1

Given

Current Earnings per share = 5.46$

Price Earnings Ratio = 18

Therefore Price per share / Earnings per share = 18

Price per share = 18*5.46 = 98.28$

Estimated Current Stock Price = 98.28$

Given that Earnings expected to grow 4.5% per year

Therefore Earnings in third year would be = Current Earnings *(1+Growth rate )^Number of years

Current earnings = 5.46$

Growth = 4.5%

Number of years = 3

Earnings in thrid year = 5.46*(1+0.045)^3 = 6.23$

Price per share / Earnings Per Share = 18 which is benchmark

Price per share / 6.23 = 18

Target Price in thrid year = 6.23*18 = 112.15$

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