Top broker rates Telstra shares as a buy

Last week the Telstra Corporation Ltd (ASX: TLS) share price traded lower following the release of its full year results, news of an asset divestment, and general market volatility.

The telco giant’s shares finished the week 4.5% lower than where they started it at $3.77.

Is this a buying opportunity?

I continue to believe that Telstra would be a good option for investors that are prepared to make a patient long-term investment.

Although times remain hard for Telstra due to the nbn headwind, when you look beyond this its underlying performance is actually quite positive due largely to its cost cutting.

Its underlying EBITDA is expected to grow by up to $500 million in FY 2020. Management provided this metric due to its belief that it offers the clearest view of the future financial performance of the business, as it excludes the recurring in-year headwind of the nbn.

And with the company now around half-way through the recurring financial impact of the nbn, the end is finally in sight and a return to growth may not be too far away.

I’m not alone in thinking that Telstra’s shares are a buy. A note out of Goldman Sachs reveals that its analysts have retained their buy rating and $4.20 price target on the company’s shares. This price target implies potential upside of 11.5% excluding dividends and 15.5% including them.

According to the note, Goldman Sachs thought that Telstra’s FY 2019 result was strong and was pleased to see solid mobile trends and its core EBITDA beat its expectations. And whilst its guidance was a touch softer than expected, this was the result of the greater than expected NBN headwind.

Overall, the broker remains positive on Telstra and believes its shares are in the buy zone.

It explained: “We stay Buy on Telstra, given: (1) our A$4.20 TP implies roughly +13% TSR, with the 4.1% div yield supportive in a low rate environment; (2) the mobile market continues to improve, supporting TLS earnings and value (mobile = 48% of GSe TP); (3) we remain positive on the cost-out opportunity, with TLS expecting to benefit from A$660mn in productivity improvements in FY20E; and (4) we believe the longer-term FCF profile is attractive and see upside risk to the current A$0.16 DPS.”

Telstra isn’t the only share that Goldman Sachs has rated as a buy this week. It has also named Reliance Worldwide Corporation Ltd (ASX: RWC) and Star Entertainment Group Ltd (ASX: SGR) shares as buys this morning.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019

Source link Finance News Australia

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