Should You Use GAAP or Non-GAAP EPS Estimates?

While all U.S. companies report GAAP earnings results, that does not mean those are the estimates that buy side (hedge fund/mutual fund) analysts tend to follow for a given stock.  For some companies the analysts focus on "adjusted" EPS or a version of Non-GAAP.  Unfortunately, you often cannot tell which EPS number is most important to investors by looking at a sell side analyst note.  The research firms have their own policies for what numbers they use in their research reports and this may or may not follow the numbers that investors focus on.  Company press releases are often not helpful on this point either.

How do you figure out which numbers you should use in your stock pitch?  A simple way to figure this out is to look at the consensus EPS estimates in First Call.  Look at last quarter's reported (actual) EPS results and see whether the number in First Call corresponds with the reported GAAP or Non-GAAP/Adjusted EPS and you will have your answer.

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