BMO Nesbitt Burns has issued a new report that evaluates the merits of various different earnings measures. “It’s all in the earnings” was prepared by market economist Samuel Lee.

“Are stocks cheap, expensive or fairly valued? It’s all in the earnings,” the report says. “With the multitude of ways to measure corporate earnings, strategists and economists can simply pick and choose the measure that best fits their story.”

It says that earnings forecasts have certainly been too optimistic in the past, “but for the most part they have been consistently optimistic. Investors can simply assume this trend remains relatively constant and adjust their forecasts accordingly.”

The report says that operating earnings has its merits, “but we believe that good-old fashioned bottom-up forward reported earnings offer the best estimates for valuing equity markets because they are less subjective and include all expenses even if they are nonrecurring.”

Taking that measure, the S&P 500 is trading at 24.9 times earnings. At the peak of the stock market, the S&P 500 was trading at 34 times forward operating earnings and at 54 times forward reported earnings.

The report says that Standard & Poors’ efforts to come up with a more accurate core earnings measure is a valid concept and the intentions are good, but “we still prefer to use forward reported earnings for valuation purposes. In addition, we believe it will be extremely difficult to get analysts to model and publish this set of earnings projections, making fore-casts unreliable.”

“Corporate earnings have been steadily improving from year-ago levels, but not as fast as analysts and companies had originally expected. Once analysts get their estimates in line and/or companies’ guidance come down to more realistic levels, then stock markets will move more in line with earnings growth,” the report concludes.