Will the Telstra Corporation Ltd share price rebound?

Credit: Telstra

In mid-afternoon trade, the Telstra Corporation Ltd (ASX: TLS) share price headed higher despite the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) falling 0.5%.

Shares of the $65 billion telecommunications giant have been struggling to gain traction in recent months, falling 5.1% in the past month.

Although interest rates remain at a record-low 2%, which usually fuels demand for quality dividend stocks like Telstra; investors have shrugged off the prospect of receiving the company’s forecast 5.8% fully franked dividend.

Indeed, in the year ahead, Telstra is forecast to pay a dividend of 31.5 cents per share – with franking. Moreover, the consensus among analysts polled by The Wall Street Journal suggests the telco’s stock is worth $5.77. With shares trading at $5.41, investors could – theoretically at least – buy Telstra stock with a margin of safety of 7%. While not a clear bargain buying opportunity by any means, it may mean investors would not be overpaying if they bought shares today.

Further, investors are reminded that relying on analyst price targets can be fraught with risk. Many of these price targets are calculated using very subjective growth forecasts or valuation models that are not practically robust (e.g. p/e and EV/EBITDA ratios).

Nonetheless, it’s easy for ordinary investors to understand what they’d be buying when they purchase Telstra. A dominant mobile network operator; leading pay-tv and fixed data business; and one of Australia’s most recognisable companies.

Some things most consumers wouldn’t know, however, is that Telstra is also investing heavily in Asia, has a growing eHealth business and stands to receive a stream of payments from the government’s NBN Co for selling its copper network. Also, competitive pressures within the broadband and fixed voice markets from rivals TPG Telecom Ltd (ASX: TPM) and M2 Group Ltd (ASX: MTU) are growing but were flagged many years ago.

Buy, Hold or Sell?

I think Telstra’s share price will be a buy when it hits $5 per share. However, although it is a little more expensive than my ideal buy price, I also think investors could do worse than to start building a position at today’s share price.

A better dividend stock than Telstra

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Motley Fool writer/analyst Owen Raszkiewicz has a financial interest in M2 Group. 

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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