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’).
Stocks with improving earnings metrics are worthy of your extra attention. Click here to discover our CHEAT SHEET stock picks now!
Here’s your Cheat Sheet to how the top 5 telecom stocks rank via earnings trends:
AT&T, Inc. (NYSE:T): Current Price $35.51
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 123,440 | 122,510 | 124,280 | 126,720 | 127,430 |
| Diluted EPS ($) | -0.44 | 2.05 | 3.35 | 0.66 | 1.25 |
We see that revenue has been picking up over the past three years for this telecom giant, and profits also moved up sharply between 2008 and 2010. Profitability, however, took a dive in 2011.
Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:
| Quarter | Dec. 31, 2011 | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 |
| Revenue ($) in millions | 32,500 | 31,820 | 31,580 | 31,460 | 32,580 |
| Diluted EPS ($) | -1.12 | 0.60 | 0.66 | 0.63 | -0.68 |
Revenue fell every quarter after December 2011 until last quarter. EPS is down three quarters in a row, failing our analysis. We could do better elsewhere…
Verizon Communications Inc. (NYSE:VZ): Current Price $44.56
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 97,350 | 107,810 | 106,560 | 110,880 | 115,850 |
| Diluted EPS ($) | -0.77 | 1.72 | 0.90 | 0.85 | 0.31 |
We see that Verizon has grown revenues nicely over the last three years, but perhaps at the cost of profit margins. EPS has been down sharply during the last four years.
Next, let’s take a look at the recent quarterly data:
| Quarter | Dec. 31, 2011 | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 | Dec. 31, 2012 |
| Revenue ($) in millions | 28,440 | 28,240 | 28,550 | 29,010 | 30,040 |
| Diluted EPS ($) | -0.72 | 0.59 | 0.64 | 0.56 | -1.48 |
On the quarterly results, Verizon has slightly improved revenues every quarter after June 2012. But EPS fell into negative territory in the latest quarter. Verizon goes off the list…
Sprint Nextel Corp. (NYSE:S): Current Price $5.69
| Fiscal Year | 2007 | 2008 | 2009 | 2010 | 2011 |
| Revenue ($) in millions | 40,150 | 35,640 | 32,260 | 32,560 | 33,680 |
| Diluted EPS ($) | -10.24 | -0.98 | -0.84 | -1.16 | -0.96 |
Sprint’s annual results are uninspiring, with revenue just better than flat. Income is also in the red.
| Quarter | Sep. 30, 2011 | Dec. 31, 2011 | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 |
| Revenue ($) in millions | 8,333 | 8,722 | 8,734 | 8,843 | 8,763 |
| Diluted EPS ($) | -0.10 | -0.43 | -0.29 | -0.46 | -0.26 |
It’s the same story for the quarterly results too… will the company ever report a profit? Let’s pass on Sprint…
MetroPCS Communications, Inc. (NYSE:PCS): Current Price $9.89
| Fiscal Year | 2007 | 2008 | 2009 | 2010 | 2011 |
| Revenue ($) in millions | 2,236 | 2,752 | 3,481 | 4,069 | 4,847 |
| Diluted EPS ($) | 0.28 | 0.42 | 0.49 | 0.54 | 0.82 |
We like these numbers from Metro PCS: steady growth in both revenue and earnings per share.
| Quarter | Sep. 30, 2011 | Dec. 31, 2011 | Mar. 31, 2012 | Jun. 30, 2012 | Sep. 30, 2012 |
| Revenue ($) in millions | 1,205 | 1,238 | 1,277 | 1,281 | 1,259 |
| Diluted EPS ($) | 0.19 | 0.25 | 0.06 | 0.41 | 0.52 |
Metro PCS seems has similar quarterly performance. Revenues have been up in all five quarters except for the last, but we’ll take that in stride. Most importantly, EPS has improved during the last two quarters. Definitely a stock to be kept on the watch-list.
Conclusion
Metro PCS is easily our candidate of choice in this “E-Squared” investment analysis, with a far more consistent set of results, both annual and quarterly, compared to its peers.
“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!