What Do EBITDA and Target Estimate Mean?

Now the term "target estimate" looks like a combination of two terms commonly used by stock analysts, target price and estimate. To make sure I answer this question, I'll give a quick review of both of these terms. I suppose the term "target estimate" gets used sometimes, but it's sort of redundant.

Estimates are the bread and butter of research firms. The analysts at these firms stay on top of companies in their coverage universe and make revenue and earnings projections based on their analyses. These projections are part of extremely detailed financial models that analysts put together, which plot out the analyst's expectations for the company's finances on a quarterly basis a year or more into the future.

Most publicly traded companies have many analysts covering their stock, and so you will sometimes read about "consensus estimates," which is the average earnings or revenue number for a company when you look at all the varying analyst projections.

When you read that a company "beat estimates by a penny" for a quarter, that means that the company's earnings were probably above some individual analysts' expectations and below the projections of others', but came in one cent higher than the average of all their projections. For example, on Jan. 25, 2007, Microsoft (MSFT) reported fourth-quarter earnings of 26 cents a share, 3 cents better than consensus estimates that had predicted EPS of 23 cents a share.

"Target price" is another term that is commonly used by analysts. Based on the detailed analyses that they do on each company, many investors want to know an analyst's target price on the stock (i.e., where the stock is headed over the next year). Typically, the analyst will choose a valuation method (yes, there are many different techniques) and arrive at a "fair value" price for the stock based on the company's expected financial performance over the long term. Analysts will often move their price target on a stock up or down as they make adjustments to their models. This is why readers will see a headline such as "Prudential raises price target on Google (GOOG)."

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