|Quarter Ending||Operating Earnings|
|As Reported Earnings|
As you can see from the totals that the operating earnings estimate for the entire year of 2006 is $85.33. The earnings estimates has made a remarkable recovery as the S&P 500 index earned only $38.85 in 2001 on operating basis.
The estimate for the reported earnings for the year of 2006 currently stands at $77.90. The earnings recovery looks even more dramatic when we compare the 2006 estimates with 2001. In 2001, the reported earnings for S&P 500 were only $24.69.
Considering the fair value of the S&P 500 is 15 times the reported earnings, we arrive at $77.90 * 15 = 1168.50. We were around 1170 mark just a few weeks ago.
If we calculate the fair value of the S&P 500 using operating earnings then we arrive at $85.33*15 = 1279.95. We are close to this number today.
Bottom line: Looking at the estimates of the next year, the market does not look terribly overvalued. But the conclusion is based on estimates and they can swing drastically with unexpected events.
All disclaimers apply.