(MONEY Magazine) – THIS MONTH: --A trio of stocks whose earnings are set to pop --A nimble giant reinvents itself --How our picks did in the earnings sweepstakes In the telecommunications industry, the race to the altar is on. AT&T is first off the mark with its audacious plan to recombine with SBC Communications. Many analysts believe the $50 billion megadeal--which would be the largest in U.S. history--will not survive antitrust scrutiny. Regulators will probably approve other mergers, however, as long as they don't look like Humpty-Dumptyish attempts to put old Ma Bell back together again. Says analyst Anna-Maria Kovacs of regional brokerage Janney Montgomery Scott in Philadelphia: "I believe we will see combinations of other companies in the industry."

What's driving the urge to merge is, of course, the 1996 telecommunications act, which deregulates the industry. The new law allows long-distance companies to compete for local service and local carriers to get into long distance. Analysts point out that it will be cheaper for telecom firms to bridge the local/long-distance gulf by merging than by starting up a competitive division from scratch. So if you own--or are thinking of buying--a regional Bell or another telephone company, the possible peal of wedding bells only adds to the appeal of stocks that many analysts were already touting as undervalued.

Unfortunately, the outlook is murkier for AT&T (ticker symbol: T; recently selling at $36.75; dividend yield: 3.6%). Granted, the merger with SBC would make AT&T the dominant local carrier in seven fast-growing western states and, according to analyst David Otto of Edward Jones, a St. Louis-based brokerage, could boost AT&T earnings. (Like other analysts, Otto won't predict exactly how much until he sees the specifics of the deal.) But the merger is a long shot, and Wall Street knows it. Of 24 analysts surveyed by research firm First Call after the news got out, 19 gave poor old Ma a "neutral" rating--the equivalent of a hold. "If and when this deal falls through, AT&T stock is likely to get hurt," Kovacs warns.

If AT&T is not allowed to buy SBC, the company will most likely go ahead with an $8 billion to $9 billion capital spending program this year to build up its local service networks. Analysts estimate that new systems will cost the company a 23% drop in earnings per share to $2.65 this year and flat earnings in 1998. Once the new business comes on line, AT&T could turn into a strong local carrier worth $73 a share, says Otto, especially if it cuts costs through layoffs. But he thinks earnings will not rise significantly before 2000.

Bottom line for AT&T shareholders: Hang on. But if you don't own the stock, don't buy it until you see what happens with the merger. If it fails to win government approval, you could have the chance to buy the stock cheap.

Almost all of AT&T's Bell offspring, on the other hand, figure to benefit from earnings growth of 10% or more and fat dividend yields of as much as 5.9%--even if none of them find a Daddy Warbucks. By contrast, the Standard & Poor's 500 yields a miserly 1.8% and is expected to show a 6% earnings gain in 1998, according to Merrill Lynch estimates. Moreover, the phone companies trade at just 14.9 times estimated 1997 earnings on average, vs. 19.3 for the S&P. Here is a rundown on the Bells and competitor GTE, all traded on the New York Stock Exchange and listed in order of their potential total returns:

--GTE Corp. (GTE; $44; 4.3%). Not only does $22.8 billion GTE provide local service in 28 states, it also has a head start in the long-distance business, having already signed up more than a million customers. "GTE could be a potential merger partner either for a long-distance company or for a foreign carrier trying to establish a foothold in the local U.S. market," predicts analyst Scott Wright of Argus Research. Susan Byrne, president and manager of $152 million Westwood mutual funds, expects earnings to grow 18% annually during the next three years, chiefly as a result of the growth of GTE's Internet business. She says that development should catapult the stock to $60 within the next 12 months, for a 41% total return.

--Bell Atlantic (BEL; $70; 4.2% yield). This $13.5 billion regional operator expects to complete its takeover of Nynex later this year. At that point it will dominate local service in New York, New England and the Mid-Atlantic States and can compete for the region's heavy long-distance and international phone traffic. (Some 35% of all U.S. international calls originate or terminate there.) Value Line analyst Kenneth Nugent expects Bell Atlantic's wedding to generate between $150 and $200 million in savings the first year alone from layoffs and streamlining of administrative and operating divisions. Moreover, money manager Susan Byrne believes that many analysts have underestimated the savings. That's why she projects an annual growth rate of 15% for the next three years--well above Wall Street's 8.5% consensus estimate. She is looking for the stock to hit $90 within 12 months, for a total return of 33%.

--Ameritech (AIT; $65.50; 3.5% yield). Analysts believe this $16.4 billion midwestern regional can post annual earnings growth of 10% in the next three years. Help will come from increasing demand for such profitable services as voice mail and caller ID, which Value Line analyst Christopher Coyle pegs to rise at 20% a year. Analyst Tod Jacobs of Sanford C. Bernstein & Co. is a fan of the company's ability to increase cash flow by holding down expenses. For instance, the firm has only 25.5 employees per 10,000 phone lines, fewer than any other regional Bell. (The closest competitor has 27.5.) Jacobs believes the stock could rise to $74, for a total return of 16% for the next 12 months.

--SBC Communications (SBC; $58.50; 3.1% yield). If its merger with AT&T is approved, SBC will likely donate its hard-nosed CEO, Edward Whitacre Jr., to head the combined company. But even if $23.5 billion SBC is left standing at the altar, it is an attractive investment. A key advantage: Its recent merger with Pacific Telesis makes it the dominant player in California. That state is the nation's most profitable long-distance market, thanks to all the high-margin traffic bound for Asia and Latin America and low intrastate access rates. Merrill Lynch analyst Dan Reingold argues that, as with Bell Atlantic, most analysts underestimate the cost savings from the merger, and he reckons on a 13.5% annual earnings growth rate by 1998. Edward Jones' David Otto also expects SBC to continue boosting its dividend annually--3% over the next year--which, when added to the company's other moves, would loft the stock to $65 in a year, for a 14% total return.

--Bell South (BLS; $45.25; 3.2% yield). This $20.2 billion "Baby" Bell serves the southeastern U.S., where it added a million new telephone lines in 1996, up 4.7% from 1995. Says analyst Frank Governali of Credit Suisse First Boston: "We like this company because it serves the fastest-growing region in the country." Prudential Securities analyst Guy Woodlief projects annualized three-year earnings growth of 10% to 11% for Bell South. He believes the stock could rise to $48, for a total return of 9% within the next 12 months.

--U S West Communications (USW; $36.50; 5.9% yield). This Bell provides service in the sparsely populated western and midwestern states, and it doesn't ring many chimes with analysts. Unlike Bell South and SBC Communications, the $10.6 billion company does not have a fast-growing cellular business. In fact, U S West's predecessor split in 1995, and a separate company, U S West Media, got the cellular as well as cable-TV holdings that were acquired in a complicated transaction with Time Warner, MONEY's corporate parent. Without such fast-growing operations, Janney Montgomery Scott's Kovacs believes U S West Communications will be able to increase earnings only 5% annually. Although income investors might be interested in its plump 5.9% yield, Prudential's Woodlief expects the stock price to remain about where it is during the next 12 months.

ALL STOCK DATA AS OF JUNE 1