Telstra Corporation Limited (ASX:TLS): What Does The Future Look Like?

In December 2018, Telstra Corporation Limited (ASX:TLS) released its earnings update. Generally, it seems that analyst forecasts are fairly pessimistic, with profits predicted to drop by 13% next year. However, this pessimism is not unsubstantiated given the negative past 5-year average earnings growth. Currently with a trailing-twelve-month profit of AU$3.6b, the consensus growth rate suggests that earnings will drop to AU$3.1b by 2020. In this article, I’ve outline a few earnings growth rates to give you a sense of the market sentiment for Telstra in the longer term. For those keen to understand more about other aspects of the company, you can research its fundamentals here.

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See our latest analysis for Telstra

How will Telstra perform in the near future?

Longer term expectations from the 10 analysts covering TLS’s stock is one of negative sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. To reduce the year-on-year volatility of analyst earnings forecast, I’ve inserted a line of best fit through the expected earnings figures to determine the annual growth rate from the slope of the line.

ASX:TLS Past and Future Earnings, May 17th 2019
ASX:TLS Past and Future Earnings, May 17th 2019

By 2022, TLS’s earnings should reach AU$2.8b, from current levels of AU$3.6b, resulting in an annual growth rate of -2.0%. This leads to an EPS of A$0.20 in the final year of projections relative to the current EPS of A$0.30. The bottom-line decline seems to be caused by revenue declining at an average annual rate of -0.9%. With earnings declining at a faster rate over time, margins is expected to contract from 14% to 10% by the end of 2022.

Next Steps:

Future outlook is only one aspect when you’re building an investment case for a stock. For Telstra, I’ve put together three relevant aspects you should look at:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is Telstra worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Telstra is currently mispriced by the market.
  3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Telstra? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.