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As Telstra Corporation Limited (ASX:TLS) announced its recent earnings release on 31 December 2018, analyst forecasts appear to be pessimistic, with earnings expected to decline by -13% in the upcoming year. Though this outlook is not unsubstantiated given the negative past 5-year average earnings growth. Presently, with latest-twelve-month earnings at AU$3.6b, we should see this fall to AU$3.1b by 2020. Below is a brief commentary on the longer term outlook the market has for Telstra. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
How will Telstra perform in the near future?
Longer term expectations from the 11 analysts covering TLS’s stock is one of negative sentiment. Since forecasting becomes more difficult further into the future, broker analysts generally project out to around 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.
From the current net income level of AU$3.6b and the final forecast of AU$2.7b by 2022, the annual rate of growth for TLS’s earnings is -2.8%. EPS reaches A$0.20 in the final year of forecast compared to the current A$0.30 EPS today. The primary reason for earnings contraction is due to revenue declining at an average annual rate of -0.8%. Furthermore, the current 14% margin is expected to contract to 10% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For Telstra, there are three relevant factors you should further examine:
- 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.
- 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.
- 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!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.