Telstra share price storms higher on broker upgrade

The Telstra Corporation Ltd (ASX:TLS) share price has been a strong performer on the market on Wednesday. Here's why…

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The market may have dropped lower today, but that hasn't stopped the Telstra Corporation Ltd (ASX: TLS) share price from pushing higher on Wednesday morning.

At the time of writing the telco giant's shares are up over 2% to $3.36.

Why is the Telstra share price charging higher today?

With no news out of the company, today's gain appears to be in relation to a positive broker note out of UBS this morning.

According to the note, analysts at UBS have upgraded Telstra's shares from a neutral rating to a buy rating. The broker has also lifted its price target on the company's shares by a sizeable 20% to $3.60 from $3.00.

This price target implies potential upside of over 7% excluding dividends even after today's gain. If you include the fully franked 16 cents per share dividend that UBS expects the broker to pay over the next 12 months, this potential return stretches to almost 12%.

Whilst the broker acknowledges that there are internal risks that investors need to remain cautious of, it believes there are external tailwinds that are building and have yet to be priced in by the market.

These tailwinds include the lessening competitive threat from TPG Telecom Ltd (ASX: TPM), possible upside from the 5G roll out, and rational competition from rival Optus following its recent plan updates.

In light of this, the broker has upgraded its earnings forecasts and believes that Telstra's dividend is now sustainable at 16 cents per share.

Should you invest?

Whilst I'm slowly warming to Telstra, I'm not quite ready to make an investment just yet.

I'd like to see improvements in NBN margins before considering an investment in Telstra, TPG Telecom, Vocus Group Ltd (ASX: VOC), or Amaysim Australia Ltd (ASX: AYS). Until then, I see more value in other areas of the market.

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. 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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