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In December 2018, Telstra Corporation Limited (ASX:TLS) released its earnings update. Generally, analyst consensus outlook seem bearish, with earnings expected to decline by -13% in the upcoming year. Though 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. Below is a brief commentary around Telstra's earnings outlook going forward, which may give you a sense of market sentiment for the company. For those interested in more of an analysis of the company, you can research its fundamentals here.
What can we expect from Telstra in the longer term?
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 get an idea of the overall earnings growth trend for TLS, I’ve plotted out each year’s earnings expectations and inserted a line of best fit to determine an annual rate of growth from the slope of this line.
From the current net income level of AU$3.6b and the final forecast of AU$2.8b by 2022, the annual rate of growth for TLS’s earnings is -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. Earnings decline appears to be a result of a reduction in the top line of -1.0%, squeezing the bottom line. With earnings declining at a faster rate over time, margins is expected to contract from 14% 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, I've compiled three fundamental factors you should look at:
- 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!
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 email@example.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.