Which of These Top 5 Telecom Stocks have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

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Here’s your Cheat Sheet to how the top 5 telecom stocks rank via earnings trends:

CenturyLink, Inc. (NYSE:CTL): Current Price $33.02

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 2,600 4,974 7,042 15,350 18,380
Diluted EPS ($) 3.52 3.23 3.13 1.07 1.25

A raft of acquisitions helped CenturyLink grow its revenue over seven times between 2008 and 2012, though EPS is decreasing during 2011 and 2012.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 4,653 4,610 4,612 4,571 4,583
Diluted EPS ($) -0.03 0.32 0.12 0.43 0.37

Revenue is mostly flat these past few quarters, and EPS fell off in December 2012. We’ll pass over CenturyLink for now…

AT&T, Inc. (NYSE:T): Current Price $35.36

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 123,440 122,510 124,280 126,720 127,430
Diluted EPS ($) -0.44 2.05 3.35 0.66 1.25

The topline has grown nicely at AT&T between 2009 and 2012, though EPS has not kept pace. However we are encouraged that EPS in 2012 doubled over that in 2011.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 32,500 31,820 31,580 31,460 32,580
Diluted EPS ($) -1.12 0.60 0.66 0.63 -0.68

But we’ll drop AT&T from our consideration following its negative EPS reported in December 2012…

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Verizon Communications Inc. (NYSE:VZ): Current Price $44.40

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 97,350 107,810 106,560 110,880 115,850
Diluted EPS ($) -0.77 1.72 0.90 0.85 0.31

Revenue growth and EPS at Verizon have headed in opposite directions. Unfortunately, EPS is on a one-way ticket south.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 28,440 28,240 28,550 29,010 30,040
Diluted EPS ($) -0.72 0.59 0.64 0.56 -1.48

Verizon too fails to make the grade because of that splash of red on its December 2012 quarter…

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Sprint Nextel Corp. (NYSE:S): Current Price $5.91

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 35,640 32,260 32,560 33,680 35,340
Diluted EPS ($) -0.98 -0.84 -1.16 -0.96 -1.44

Sprint Nextel has a series of negative EPS numbers over the past five years — not what we like to see.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012 Dec. 31, 2012
Revenue ($) in millions 8,722 8,734 8,843 8,763 9,005
Diluted EPS ($) -0.43 -0.29 -0.46 -0.26 -0.44

There’s no letup in the losses in the quarterly numbers either. Sprint is off our list…

Telephone & Data Systems Inc. (NYSE:TDS): Current Price $25.65

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 4,829 5,091 5,020 4,987 5,180
Diluted EPS ($) 2.962 0.6992 1.67 1.31 1.83

We note an upward trajectory in the topline and EPS at Telephone & Data.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 1,325 1,317 1,306 1,323 1,370
Diluted EPS ($) 0.65 -0.05 0.48 0.39 0.27

We are disappointed, however, that EPS has fallen off during the June and September 2012 quarters. This one will not make our list unless they can increase quarter-over-quarter earnings this coming Friday, February 22…

Conclusion

Unfortunately, none of the telecom stocks reviewed above make the grade for ourĀ ”E-Squared” investment analysis. They each fail the essential test of increasing earnings quarter-over-quarter.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute – click here to discover our CHEAT SHEET stock picks now!