Tuesday, September 11, 2007


Yesterday, I wrote about the three cycle humps. Today, I want to note the two bumps in CAL earnings estimates. Just a couple of weeks ago, the consensus earnings estimate for CAL was $4.24 and then it was raised to $4.38. Today, the consensus took another bump up to $4.45, the 2008 estimate has been raised to $4.96.

Thirty-one divided by 4.96 produces a forward PE ratio of 6.25. The inverse of 6.5 gives an earnings yield of 16%. I don't know of many investments that offer a 16% yield. Even better, I am confident that the $4.96 estimate will be increased several times between now and next year.

6.25 is a value stock PE ratio but half of CAL's business, the international half, is growing at 17%. The other half is growing at 6%. At the very least, CAL should trade at its earnings times its average growth rate of 11.5%, or 4.45 times 11.5 or $51. My guess is that the stock will reach $51 within 6 months of today's date. I'll put $51 on my calendar on March 11 just to see how my guess works out.