As Australia's largest telecommunications business Telstra Corporation Ltd (ASX: TLS) receives a lot of analyst coverage, with varying levels of credibility.
Today's Fairfax business media is reporting that an analysis by European financial services group Credit Suisse suggests Telstra's recent success in dominating mobile market share will come to an end during the 12 months ending June 2016.
The clairvoyants at Credit Suisse have reportedly cut to Telstra to an underperform with a 12-month price target of $5.55. The Fairfax press has reported that the analysts are worried "the tide will turn during the 12 months ending June 2016" for Telstra and its dominance of mobile market share.
Although making predictions about mobile market share out to June 2016 might seem a long way out, the team at Credit Suisse have not just been turning the tarot cards to come to this conclusion. Rather their analysis is based on multiple assumptions around data plans, pricing, consumer trends and resurgent reputations.
The predictions are also reportedly based on the fact that Optus, owned by Singapore Telecommunications Ltd (CHESS) (ASX: SGT), just posted an apparently strong quarter of postpaid mobile subscriber growth.
Vodafone Australia is operated by Hutchinson Telecommunications (Aus) Ltd (ASX: HTA) and Credit Suisse also expects it to start applying the competitive squeeze on Telstra. This despite the idea that Vodafone's mobile network is a proven customer loser, whereas Telstra's dominance is based on its best-in-class reputation.
In August 2014 another gun telco analyst team at the Commonwealth Bank of Australia (ASX: CBA) declared Telstra was "very unlikely" to launch a share buyback just before the company announced the biggest share buyback scheme in its history.
Perhaps the mountain of cash sitting on the company's balance sheet with nowhere to go escaped the CBA team's attention, or more likely they just got it wrong.
Either way this goes to show why it's often not worth paying attention to analysts' 12-month price targets or short-term predictions for businesses like Telstra.
Rather the key to investing success is identifying businesses that will deliver long-term outperformance. Once identified you buy to hold and let the power of compounding returns work their magic.
