Sunday, August 26, 2018

Looking for Value, Part 3, Analysis on the Telecom Majors

Sorry I didn't get right on this after the 21st, I meant to publish this final section on the 22nd, but some life came up.

As mentioned on Tuesday, I'm going to look at Telecom Majors to see if anything looks good.  This analysis will be in three parts: an analysis on year over year growth in earnings, a quality of earnings review and valuation using Ohlson Clean Surplus.  I discussed the latter two on Seeking Alpha and published links on this blog.  For convenience the links are in this article too.

Year over Year Growth in Earnings

This calculation looks at how many years the company has been able to achieve year over year growth in its earnings per share.

What the graph below shows is the number of times the company has grown its earnings with respect to its previous year.  The maximum score is six.

T and SHEN have done fairly well with a score of four each.  What I want to check next is how reliable those earnings results are.  For that I use the quality of earnings.

Quality of Earnings

This quality of earnings measure looks at multiple factors and scores each factor with a pass (1) or a fail (0).  These scores are summed to give a grand score out of eight.  Here's how they did.

VZ - 4
T - 5
SHEN - 6
CNSL - 3
BCE - 4
ALSK - 4
ATNI - 3
CBB - 2

SHEN at six is a good score, which makes me even more confident when coupled with its good earnings growth.  But is it fairly valued or even better, under-valued?

Valuation Using OCS

The graph below charts the percentage difference between the theoretical price and the stock's current price, therefore a value above zero indicates the company is trading at a discount relative to the theoretical price.

VZ and T are the only two at a discount, the rest appear to be over-valued which unfortunately includes SHEN.


I like to sleep easy at night so I look for a number of factors to be in alignment.  I've had very good results when there is an intersection between good earnings growth, good earnings quality and a theoretical value below the actual value.

We didn't have it this time, but that's OK, it's a big world of stocks.  Maybe we'll hit on the next analysis which will be on the cannabis phenomena in Canada.

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