Top broker slaps $9.80 price target on TPG Telecom Ltd shares

When the shares of Vocus Communications Limited (ASX: VOC) came crashing down on Tuesday following its disappointing trading update, it wasn’t the only telco to suffer the wrath of investors.

Although it thankfully wasn’t quite as severe, shareholders of telco giant TPG Telecom Ltd (ASX: TPM) saw the value of their holdings drop by over 7% that day.

According to a report in the Australian Financial Review, analysts at Goldman Sachs believe the sell off in TPG Telecom shares has presented investors with a buying opportunity.

Analysts at the investment bank believe the Vocus sell off is company specific. As a result they have reiterated their buy rating and 12-month price target of $9.80 on TPG Telecom.

At the current share price that equates to a staggering potential return of over 36% for investors.

I would have to agree with Goldman Sachs on this. TPG Telecom was already looking like a bargain buy prior to Tuesday’s sell off, but now it looks like a gift for investors at under 16x full year earnings.

The company may be subject to short-term margin pressures, but the company is attempting to combat this through its own high-margin fibre services.

Furthermore I believe the prospect of market share gains in both mobile and in broadband via the NBN rollout should provide the company with plenty of growth over the next few years.

As far as I’m concerned both TPG Telecom and Vocus are buys following the recent declines in their respective share prices. Pleasingly this is a view shared by Citibank analysts. The same report reveals that Citi has a buy recommendation on Vocus with a price target of $6.85.

Whilst 2016 wasn't a great year for the telcos, I believe 2017 will be much better. The same can be said for these hot stocks. The smart money is on them being big winners next year. Is yours?

Big, Fat, Dividends

This company's dividend is almost the stuff of legends. Its reliable cash flows support a high payout ratio, and the company's stash of franking credits are the cherry on the top of the dividend cake. Based on the last 12-months of dividends, shares are offering a fully-franked 6.5% yield, which grosses up to a whopping 9.3%, when those franking credits are included.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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