It certainly has been a stunning year for the Telstra Corporation Ltd (ASX: TLS) share price.
Since the start of the year the telco giant's shares have rallied almost 39% higher. If you include its interim 8 cents per share dividend, this return stretches to just under 42%.
There have been a number of catalysts for this strong gain, including the Huawei 5G ban, the ACCC's veto of the TPG Telecom Ltd (ASX: TPM)-Vodafone Australia merger, and the return of rational competition in the telco space.
Is it too late to buy Telstra shares?
Whilst Telstra certainly isn't the bargain buy that it was six months ago, one leading broker believes its shares still have the potential to run notably higher.
According to a note out of Morgans on Monday, the broker has retained its add rating and lifted the price target on Telstra's shares to a lofty $4.47 from $3.62 following a switch in valuation method.
This price target implies potential upside of 16.5% over the next 12 months or 20.5% if you include the fully franked 16 cents per share dividend that the broker expects it to pay over the period.
Why is Morgans bullish on Telstra?
There are three main reasons that Morgans is bullish on the Telstra right now. They are:
- "There is valuation upside as we move to valuing the recurring earnings of InfraCo."
- "The leading indicators for fixed and mobile (60% of recurring EBITDA) have turned positive (noting the P&L impact will take approximately 18 months to flow through)"
- "The sentiment pendulum over-swung on the downside and will likely do so on the upside as well."
In addition to this, the broker notes that Telstra and its peers are now working through the tail end of homogenous 4G networks and price-based competition.
However, it expects the launch of 5G to reset competitive intensity and believes that network quality will outweigh price for the first few years. As Telstra is leading the 5G drive, Morgans believes it will help expand its subscribers and ARPU.
In light of this, the broker doesn't feel it is too late to pick up the company's shares after its market-beating run in 2019.
