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Is the Telstra share price a buy?

Is the Telstra Corporation Ltd (ASX: TLS) share price worth buying today?

Telstra has been one of the surprise performers since the start of 2019, the Telstra share price has increased by 39% this year.

The telco is facing competition from low-priced competitors in the mobile sector and the NBN is severely crimping Telstra’s profit margins in the broadband space.

But what Telstra has done over the past year is focus on cutting down on costs. A significant amount of the cost reductions is coming from Telstra employees and contractors, which isn’t good for the people involved. But it does do the job and it is winning support from the market.

Cutting around 8,000 employees overall, and 6,000 by this year, is quite an expensive exercise in terms of redundancy costs, which is why Telstra guided that total FY19 restructuring costs will be $800 million. A further $350 million of restructuring costs is expected after FY19.

Telstra is aiming for a net cost out target of $2.5 billion by the end of 2022. As you can imagine this is such a large cost cut figure that some investors feel Telstra is worth investing in if this is achieved.

The company may also reduce costs as the NBN rollout finishes, which may lead to lower call volumes.

But costs are only side of the question. If Telstra’s revenue continues to be troubled by the switch to the NBN and cheap mobile plans then Telstra’s profit isn’t going to grow. Just think how much competition there is: Amaysim Australia Ltd (ASX: AYS), Vocus Group Ltd (ASX: VOC), TPG Telecom Ltd (ASX: TPM), Vodafone, Optus and many others.

Foolish takeaway

Telstra is trading at 24x FY21’s estimated earnings with a grossed-up dividend yield of 5.9%. I may actually prefer Telstra to the big banks at the moment, but I don’t think it’s worth buying. I think there are many other good opportunities. 

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Motley Fool contributor Tristan Harrison 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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