Will the Telstra Corporation Ltd share price hit $5?

Credit: Telstra

The Telstra Corporation Ltd (ASX: TLS) share price has fallen from $6.50 in August to just $5.36 at today’s open.

Source: Google Finance

Source: Google Finance

To understand why Telstra’s share price has fallen, let’s take a look at some potential catalysts.

Firstly, as Australia’s largest telecommunications company, with its fingers in many pies, Telstra is facing stiff competition.

For example, despite previously controlling a near monopoly of the pay-tv market, along with News Corp (ASX: NWS), Telstra’s Foxtel brand is under threat from the likes of Netflix, Optus’ Fetch TV and Stan.

In the all-important mobiles market, Telstra continues to be streets ahead of its closest rival, SingTel’s Optus and third-placed Vodafone – partly owned by Hutchison Telecommunications (Aus) Ltd (ASX: HTA). However, competition is heating up.

In broadband, Telstra’s dominance is being challenged by TPG Telecom Ltd (ASX: TPM) and M2 Group Ltd (ASX: MTU). However, Telstra’s transition away from fixed products (home phones, broadband, etc.) has been flagged for some time given the NBN Co’s purchase of its 100-year-old copper cable assets. Nevertheless, these products continue to be significant profit generators for the company.

Growth ahoy

Looking ahead, Telstra’s cashed-up and looking to invest in new and existing growth areas. Money from the lucrative NBN Co deal will be rerouted to the company’s Asian expansion, invested in mobile networks, eHealth and networked communications technology.

Telstra’s transition towards a nimbler technology powerhouse has been a long time in the making, but the company’s new CEO, Andrew Penn, may also be a point of uncertainty for investors. In my opinion, his time as Telstra’s CFO puts him in good stead to continue Telstra’s growth story.

Buy, Hold or Sell?

Previously, I said $5 per share would present a good entry point for investors looking to build a position in Telstra. If Telstra’s share price indeed fell to $5, I think investors would have an adequate margin of safety to justify a long-term investment for income and modest growth. Of the 15 analysts surveyed by The Wall Street Journal, the average price target is $5.77.

As a bonus, at $5, Telstra’s trailing dividend yield would be 6.3% fully franked – 9% grossed up.

Try getting that from the bank!

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Motley Fool contributor Owen Raskiewicz has a financial interest in M2 Group Ltd.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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