An average of the estimated short-term earnings growth for the companies in the portfolio. We first obtain Wall Street’s consensus earnings estimates for each stock’s next-reported fiscal year. Comparing that earnings estimate with the most recently reported actual earnings yields a one-year estimated growth rate. Morningstar computes this rate for each stock and then computes the weighted average for the whole portfolio of stocks.
Benefits
Allows users to gauge the growth potential of a portfolio’s underlying companies. This enables users to view the portfolio’s valuation (such as P/E ratio, P/B ratio, and P/Cash Flow) within context. This forward earnings-growth can also be compared with the trailing Three-year Earnings-Growth rate to determine if there is any change.
Origin
The Wall Street consensus earnings estimates are obtained from Zacks Investment Research, Inc. The computation of the growth rate and the portfolio averages are done by Morningstar. One-year forward earnings growth estimates are recalculated every month based on month-end equity share prices.
For the Pros
The actual calculation for each stock in the portfolio is:
Rate = [(Next reported annual earnings-per-share consensus estimate/Last reported annual earnings-per-share) x 100] – 100