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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

An analyst's report on Kaveri Foods uses a base-case EPS of Rs 40 and a P/E of 20 to give a target price. The report adds a sensitivity table: EPS Rs 36 with P/E 18, and EPS Rs 44 with P/E 22. What are the downside and upside target prices in this table, respectively?

The downside target is Rs 648 (EPS 36 x P/E 18) and the upside is Rs 968 (EPS 44 x P/E 22). Both the earnings estimate and the multiple change in each scenario, so each price is the product of the two changed inputs.

  1. ARs 648 and Rs 968Correct
  2. BRs 720 and Rs 880
  3. CRs 648 and Rs 880
  4. DRs 800 and Rs 968

Explanation

Downside = 36 x 18 = Rs 648. Upside = 44 x 22 = Rs 968. The base case is 40 x 20 = Rs 800. Rs 720 is 36 x 20 (EPS changed only), and Rs 880 is 44 x 20 (EPS changed only), so they ignore the multiple change.

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