Telstra Corporation Limited's (ASX:TLS) most recent earnings announcement in August 2019 signalled that the business faced a major headwind with earnings falling by -40%. Today I want to provide a brief commentary on how market analysts predict Telstra's earnings growth trajectory over the next couple of years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Analysts' outlook for next year seems positive, with earnings climbing by a robust 28%. However, earnings is forecasted to fall thereafter, reaching AU$2.4b in 2022.
Although it’s helpful to be aware of the rate of growth year by year relative to today’s level, it may be more beneficial to gauge the rate at which the business is growing on average every year. The advantage of this technique is that it removes the impact of near term flucuations and accounts for the overarching direction of Telstra's earnings trajectory over time, fluctuate up and down. To compute 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 5.9%. This means, we can assume Telstra will grow its earnings by 5.9% every year for the next few years.
For Telstra, I've put together three relevant factors you should further research:
- 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 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.
- 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!
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.