When I'm using a multiple to determine a 12-36M price target, I was wondering what the convention was regarding the use of Calendar Year vs. Fiscal Year for companies where the 2 don't align.
Typically when spreading public comps, I use CY to standardize for different FY ends.
If I'm applying a '26E P/E multiple to my 2026E EPS to arrive at a target stock price, that P/E multiple will be a benchmark multiple based on my CY comp spreads so intuitively, it makes sense to me to use the CY2026E EPS vs. FY.
In some standard HF modeling examples I have access to, I see that it's all based on FY for the 12-36 month price targets so was curious how professionals do it.
I understand that a DCF is based on FY given that aligns with company reporting.
Use a calendar year adjustment
When determining a 12-36 month price target using multiples, the convention can vary depending on the context and the specific modeling approach. Here's a breakdown based on the most helpful WSO content:
Calendar Year (CY) vs. Fiscal Year (FY):
Hedge Fund Modeling Examples:
Professional Practice:
Key Takeaway:
Ultimately, the most important factor is maintaining consistency between the multiple and the earnings figure you're applying it to.
Sources: Biotech finance part 2: valuation methodologies and modeling considerations, Biotech finance part 2: valuation methodologies and modeling considerations, January 2016 Data Update 8: Pricing, with an end of month update, DCFs no longer necessary?, Accretion Follow-Up - Technical Question
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