What Should You Know About Telstra Corporation Limited’s (ASX:TLS) Earnings Trajectory?

The most recent earnings release Telstra Corporation Limited’s (ASX:TLS) announced in June 2018 signalled that the company endured a minor headwind with earnings falling from AU$3.89b to AU$3.56b, a change of -8.4%. Investors may find it useful to understand how market analysts view Telstra’s earnings growth outlook over the next couple of years and whether the future looks brighter. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

See our latest analysis for Telstra

Analysts’ outlook for next year seems pessimistic, with earnings falling by a double-digit -25.9%. Over the medium term, earnings are predicted to continue to be below today’s level, with a decline of -25.8% in 2020, eventually reaching AU$2.64b in 2021.

ASX:TLS Future Profit August 27th 18

While it is helpful to understand the rate of growth year by year relative to today’s value, it may be more valuable determining the rate at which the business is moving on average every year. The pro of this technique is that it ignores near term flucuations and accounts for the overarching direction of Telstra’s earnings trajectory over time, fluctuate up and down. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is -16.9%. This means, we can expect Telstra will chip away at a rate of -16.9% every year for the next few years.

Next Steps:

For Telstra, I’ve put together three key 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 TLS 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 TLS is currently mispriced by the market.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of TLS? 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 editorial-team@simplywallst.com.