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Leading brokers remain divided on Telstra Corporation Ltd (ASX:TLS)

The Telstra Corporation Ltd (ASX: TLS) share price continued to come under selling pressure on Thursday a day after its investor day plunge.

The telco giant’s shares finished the day lower by 2% to $2.72.

Is it time to invest?

Opinion continues to be largely divided on the outlook of Telstra. One of the most bearish brokers is Citi. A note out of the investment bank this morning reveals that it has retained its sell rating and slashed its price target to a lowly $2.30.

This price target implies potential downside of over 15% from today’s close price.

According to the note, the broker has reiterated its view that Telstra’s dividend is unsustainable and believes that it will be cut to at least 10 cents per share from FY 2021.

Based on its last close price that would be mean a dividend yield of approximately 3.7%, which certainly wouldn’t be attractive for income investors.

But not all brokers are as bearish as Citi. One broker even has the telco giant’s shares on its conviction buy list.

According to a note out of Goldman Sachs, it has cut its price target to $3.60 following the disappointing FY 2019 guidance, but it still has a conviction buy rating on Telstra’s shares.

Goldman’s price target implies potential upside of 32% for its shares, quite the opposite of Citi.

The broker has retained its positive view on Telstra due to its belief that the 2022 strategy addresses a wide range of investor concerns and simplifies the investment thesis.

It does, however, admit that a dividend cut is likely in FY 2019 given its guidance. Goldman had expected core EBITDA of $8.2 billion next year, compared to guidance of $7.2 billion.

As a result, it has pencilled in a 17 cents per share dividend in FY 2019, which equates to a fully franked 6.2% yield at its current share price.

In addition to this, Goldman believes that Telstra’s aggressive plans will be a negative for its peers and has retained its sell rating on TPG Telecom Ltd (ASX: TPM) and neutral rating on Vocus Group Ltd (ASX: VOC).

Should you invest?

While I do see a lot of value in Telstra’s shares after recent declines, I’m not convinced that it is the right time to invest.

If the company can execute its strategy successfully then there may be good times ahead for shareholders. However, the strategy carries an awful lot of execution risk and its failure could see its shares decline significantly. In light of this, I plan to stay away from the telco giant until there is proof that the strategy is working.

Until then I see far more value and far less risk in these top shares.

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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, TPG Telecom Limited, and Vocus Communications 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.

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