EPS accretive refers to a situation where an action or event, such as an acquisition or investment, increases a company’s earnings per share (EPS). This term is commonly used in finance and investment contexts to assess the impact of various corporate actions on shareholder value.

When a corporate action is described as EPS accretive, it means that the action is expected to increase the company’s earnings on a per-share basis. This increase in EPS can occur through various means, such as:

Increased Profitability: The action results in higher profits for the company, which are then distributed across a smaller number of shares, leading to higher EPS.

Reduced Share Count: The action involves reducing the number of outstanding shares, such as through share buybacks. With fewer shares outstanding, the same level of earnings is spread across a smaller base, resulting in higher EPS.

Synergies from Mergers and Acquisitions: In the case of mergers and acquisitions, if the acquired company has higher earnings than the acquiring company’s EPS, the combined entity’s EPS may increase. This can happen if there are cost synergies, revenue synergies, or other efficiencies realized from the merger or acquisition.

EPS accretion is often viewed positively by investors because it indicates that the company’s profitability on a per-share basis is improving, potentially leading to higher stock prices. However, it’s important for investors to consider the quality and sustainability of the earnings increase, as well as the broader implications of the corporate action on the company’s long-term growth prospects and financial health.

Lauren Hua is a private client adviser at Fairmont Equities.

 An 8-week FREE TRIAL to The Dynamic Investor can be found HERE.

Would you like us to call you when we have a great idea? Check out our services.

Disclaimer: The information in this article is general advice only. Read our full disclaimer HERE.

Like this article? Share it now on Facebook and Twitter!