It has been a disappointing day of trade for the Telstra Corporation Ltd (ASX: TLS) share price.
In late afternoon trade the telco giant’s shares are down a disappointing 6% to $3.04.
Why are Telstra’s shares tumbling lower today?
With no news out of the company, today’s decline is likely to be attributable to profit taking from investors following its strong run over the last few weeks.
After all, prior to today Telstra’s shares were up a sizeable 12.5% in the space of just three weeks. This period even included its shares going ex-dividend for its 11 cents per share final dividend.
The catalyst for this gain has of course been the planned merger of TPG Telecom Ltd (ASX: TPM) and Vodafone Australia.
The general consensus is that this merger will lead to more rational competition in the telco market, putting an end to the price war that has negatively impacted Telstra’s and TPG Telecom’s margins.
While I do agree with this view and expect both companies to benefit from the merger, it still needs approval from the ACCC. So it may be a little soon to get overly excited about their plans.
As well as profit taking, this decline could be a delayed reaction to a broker note out of Citi on Thursday.
According to the note, the broker doesn’t agree with the view that the merger will lead to better trading conditions. It fears that the market may become even more competitive with three major players.
In light of this, it doesn’t see much relief for Telstra and its core earnings which it feels are in structural decline. Unsurprisingly, Citi has retained its sell rating and lowly $2.30 price target on the telco giant’s shares.
Should you invest?
While I am optimistic that the merger will lead to more rational competition, I don’t intend to invest until I’ve seen evidence of this. Because of this, I intend to focus on other areas of the industry such as data centre and telco company Macquarie Telecom Group Ltd (ASX: MAQ).
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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.