Yesterday, I held forth, in a rather sarcastic tone, about why valuing a company, or its stock price, using non-GAAP EPS, feels a little like chasing after, and then herding unicorns. This, I said, was doubly true at companies about to merge (like Schering-Plough & Merck).
This afternoon, Jim Mueller, of The Motley Fool finds several unicorns -- in Pfizer's recently-reported "as adjusted EPS" (i.e., non-GAAP EPS). Funny thing. Pfizer is in the midst of acquiring Wyeth -- and I bet the same analysis I offered yesterday -- applies. In any event, do take a look at The Fool:
. . . .The real question, though, is whether Pfizer, Wall Street analysts, and investors should rely so heavily on those "adjusted" numbers. Clearly, investors like what they're seeing; the stock rose more than 1% yesterday following the earnings report, and was up even more sharply in today's session.
But I don't like that "certain significant items" includes such things as "major non-acquisition-related restructuring charge[s]" which Pfizer announced just a couple of quarters ago, "sales of products or facilities that do not qualify as discontinued operations," and "certain intangible asset impairments" or amortization. To me, it's beginning to look as if company executives are cherry-picking what to include in the numbers they want everyone to pay attention to. . . .
Listen up, Fools. Looking past currency fluctuations can be an important way to see how a business is faring. And Pfizer is doing all right on that front.
But generally accepted accounting principles, for all their faults, are meant to provide transparency in the reporting of results by the companies in which we invest. And that means the cost of doing business includes the cost of things like "non-acquisition-related restructuring." When management starts throwing around things like "adjusted this" and "don't include that," turn up your skepticism meter and take a deeper look. Then decide if you really want to invest in that company. . . .
Indeed -- couldn't have said it better, myself. Ooh, wait! Check that. I did.