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In December 2017, Telefónica SA. (BME:TEF) released its most recent earnings update. Generally, analyst consensus outlook appear cautiously optimistic, with profits predicted to increase by 33.51% next year relative to the past 5-year average growth rate of -24.90%. With net income at current levels of €2.86B, we should see this rise to €3.81B in 2019. Below is a brief commentary on the longer term outlook the market has for Telefónica. For those interested in more of an analysis of the company, you can research its fundamentals here. View our latest analysis for Telefónica
Can we expect Telefónica to keep growing?
Over the next three years, it seems the consensus view of the 29 analysts covering TEF is skewed towards the positive sentiment. Given that it becomes hard to forecast far into the future, broker analysts tend to project ahead roughly three years. To understand the overall trajectory of TEF’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.
From the current net income level of €2.86B and the final forecast of €4.38B by 2021, the annual rate of growth for TEF’s earnings is 9.61%. This leads to an EPS of €0.88 in the final year of projections relative to the current EPS of €0.56. The bottom-line growth seems to be caused by cost-cutting initiatives, since top-line is predicted to rise at a slower pace than earnings. With a current profit margin of 5.40%, this movement will result in a margin of 8.58% by 2021.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For Telefónica, there are three key factors you should look at:
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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.
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Valuation: What is Telefónica 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 Telefónica is currently mispriced by the market.
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Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Telefónica? 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 pass 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.