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Is the Telstra Corporation share price in the buy zone?

In afternoon trade the Telstra Corporation Ltd (ASX: TLS) share price has defied the market decline and pushed higher.

At the time of writing the telco giant’s shares are up slightly to $3.03.

Are Telstra’s shares in the buy zone?

While I’m not quite ready to hit the buy button just yet, one leading broker that thinks its shares are in the buy zone is Goldman Sachs.

This morning Goldman released a note in response to Telstra’s 5G update on Wednesday declaring Telstra as a buy with a $3.60 price target. This price target implies potential upside of almost 19% for its shares excluding dividends.

What did the note say?

Telstra provided a live 5G Non-Standalone (NSA) trial at the event which Goldman thought was on-par with global 5G leader Verizon.

The telco giant was also constructive on its business case. One key takeaway from the event was the incremental revenue opportunity from 5G for the market leader and also in the longer term from new addressable markets in Enterprise and Consumer.

Goldman expects its 5G investment to be a powerful marketing tool and support subscriber growth. It also expects early adopters to have a higher willingness to pay for the new technology, supporting its average revenue per user (ARPU) metric.

The broker notes that this is consistent with what Telstra experienced across the 3G and 4G upgrade cycles, with its ARPU trends improving as these technologies were rolled out.

Another positive is the opportunity to improve fixed line margins through bypassing the NBN. While Goldman believes this will only be for specific customer segments, it could certainly be a positive down the line.

As well as the 5G update, management provided a trading update for FY 2019. It reiterated its guidance and noted that it has seen continued good subscriber momentum despite intense competition. It also advised that the T22 strategy is tracking well and its cost cutting continues to progress.

Overall, the broker was pleased with the update and has held firm with its buy recommendation. It also held firm with its sell recommendation on TPG Telecom Ltd (ASX: TPM), but that was largely on valuation grounds. Whereas rival Vocus Group Ltd (ASX: VOC) was last given a neutral rating on November 30 by Goldman.

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. The Motley Fool Australia has recommended 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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