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Should you buy Telstra Corporation Ltd (ASX:TLS) shares?

Although the Telstra Corporation Ltd (ASX: TLS) share price has followed the market lower today, it is still up a sizeable 5.5% since this time last week.

Should you be buying Telstra shares as well?

While I’m not quite convinced that now is the time to buy Telstra shares, one broker that believes it is a buy is Goldman Sachs.

It has the telco giant on its conviction buy list with a price target of $3.60 on its shares. This price target implies potential upside of 18% excluding dividends over the next 12 months.

Including dividends this potential return becomes even more attractive for investors. According to the note, the broker expects Telstra to declare a 17 cents per share dividend in FY 2019. If this is accurate then it would increase its potential return to approximately 23.5%.

Why is Goldman Sachs bullish on Telstra?

The broker was pleased with Telstra’s recent results release which it described as “high quality”.

The star of the show for Goldman was its postpaid mobile business. It stated that: “The highlight of the result in our view was the accelerating subscriber momentum across each of Telstra’s key business lines, but most significantly in postpaid mobile, where it delivered the strongest half of growth in five years and achieved 70% market share of net adds in 4Q18.”

I think the broker makes some valid points here. Though it will be interesting to see if this momentum continues with the arrival of the TPG Telecom Ltd (ASX: TPM) mobile network.

Its analysts don’t appear concerned by the TPG Telecom threat. They felt that the result was supportive of their view that Telstra will be able to “continue delivering strong subscriber growth, despite increasing competition, and stabilize its core earnings from FY19 by successfully executing on its productivity program.”

Should you invest?

Goldman expects Telstra to achieve earnings per share of 24 cents in FY 2019 and then 21 cents in both FY 2020 and FY 2021. Based on these estimates Telstra’s shares are changing hands at under 13x FY 2019 earnings and 14.5x FY 2020 earnings.

This could make them a good option for investors if things do stabilise as Goldman expects. However, I’d prefer to see proof of this before investing and plan to keep my powder dry for the time being.

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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 and TPG Telecom 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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