AIR - Air NZ.

[Snow Leopard]

Implied 0% growth rate from 2017 onwards = (35(8.5+0)*4.4/3.5)/100 = $3.74

Implied 1% growth rate from 2017 onwards = (35(8.5+2)*4.4/3.5)/100 = $4.62

Aren't their earnings supposed to decline over the next 3-5 years?

Any chance that someone could annotate this for me? Currently it doesn't mean much to me.

35 -- EPS best guess for FY2017
(8.5+X) -- the much abused Graham formula
4.4/3.5 -- airline discount factor, accidentally inverted

Should read

0% growth = $0.35*(8.5+0)*3.5/4.4 = $2.37
1% growth = $0.35*(8.5+2)*3.5/4.4 = $2.92

Best Wishes
Paper Tiger

[winner69]

35 -- EPS best guess for FY2017
(8.5+X) -- the much abused Graham formula
4.4/3.5 -- airline discount factor, accidentally inverted

Should read

0% growth = $0.35*(8.5+0)*3.5/4.4 = $2.37
1% growth = $0.35*(8.5+2)*3.5/4.4 = $2.92

Best Wishes
Paper Tiger

Interesting ....esp where you put your smilie thing

Benjamin didn't like airline stocks they say

[hardt]

Maybe you should add some examples with negative growth. Remember - tourism and air travel are very cyclical - and currently at the peak.

Airliners are cyclical for sure as margins expand and contract in their usual cycles, But with each cycle AIR moves through they will hit lows and highs that are both higher than the previous cycles.

Negative growth rate over the next 4 years will most likely be followed by positive growth rate thereafter, the valuation takes a look at a 7-10 year average.

[hardt]

35 -- EPS best guess for FY2017
(8.5+X) -- the much abused Graham formula
4.4/3.5 -- airline discount factor, accidentally inverted

Should read

0% growth = $0.35*(8.5+0)*3.5/4.4 = $2.37
1% growth = $0.35*(8.5+2)*3.5/4.4 = $2.92

Best Wishes
Paper Tiger

Honestly never knew he inverted yields with airliners, are you pulling my leg?

[Snow Leopard]

Honestly never knew he inverted yields with airliners, is that for real.

No I made that up - I think.

But kindly do tell us what is this 4.4/3.5 thing?

Best Wishes
Paper Tiger

[hardt]

No I made that up - I think.

But kindly do tell us what is this 4.4/3.5 thing?

Best Wishes
Paper Tiger

Graham revised the formula in 74 when he realised the greatest contributing factor behind stock values over the decade had been interest rates

At the time of around 1962 when Graham was publicizing his works, the risk free interest rate (AAA 10-20y) was 4.4%.
To adjust this to the present we divide by todays AAA corporate bond rate which is around 3.5%

[Beagle]

Seeing as IATA are predicting medium term growth in passenger travel at 5% and AIR are putting on about that level of new capacity if one uses 5 for the g part of Ben Graham's formula you get a really interesting answer !...where's some facts like the latest monthly operating stat's.

[winner69]

Seeing as IATA are predicting medium term growth in passenger travel at 5% and AIR are putting on about that level of new capacity if one uses 5 for the g part of Ben Graham's formula you get a really interesting answer !...where's some facts like the latest monthly operating stat's.

But that would put AIR on a PE of 18.5 or in the other formula hardyakker uses at would be 23 plus ...at the top of the cycle as well

Even you know that's plain stupid ..... also highlights that old school methods don't work these days (nice way of saying that Ben's formula has some inherent flaws in it for these times)

But its fun eh ....saying that intrinsic valie of AIR is over $7 - isn't the market stupid giving it a 50% discount to Bens valuation

[Beagle]

But that would put AIR on a PE of 18.5 or in the other formula hardyakker uses at would be 23 plus ...at the top of the cycle as well

Even you know that's plain stupid ..... also highlights that old school methods don't work these days (nice way of saying that Ben's formula has some inherent flaws in it for these times)

But its fun eh ....saying that intrinsic valie of AIR is over $7 - isn't the market stupid giving it a 50% discount to Bens valuation

LOL yes its fun mate but even using my tight fisted valuation approach of only paying 1g that gives 37 x (8.5 + 5) = $4.99 but the sceptics will say that AIR can't possibly grow at 5% per annum for the foreseeable future across the cycles...but you never know maybe they can ?, here's a thought... maybe all those brokers DCF models using a 2% terminal growth rate are just a wild guess too

[hardt]

But that would put AIR on a PE of 18.5 or in the other formula hardyakker uses at would be 23 plus ...at the top of the cycle as well

Even you know that's plain stupid ..... also highlights that old school methods don't work these days (nice way of saying that Ben's formula has some inherent flaws in it for these times)

But its fun eh ....saying that intrinsic valie of AIR is over $7 - isn't the market stupid giving it a 50% discount to Bens valuation

Using the best case scenario to value a stock will never do you any good.

if this stock had 5% bottom line growth coming its way it would be $5+ but it doesn't - the market is aware of this.

The formula is only as good as the number you put in it.