Leading broker says Telstra (ASX:TLS) share price is a buy

The Telstra share price could still be great value…

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Three different hands against a blue backdrop signal thumbs up, indicating share price rise on the ASX market

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Last week the Telstra Corporation Ltd (ASX: TLS) share price ended the period at $3.88.

This means the telco giant’s shares are now up 29% since the start of the year.

This is more than double the return of the S&P/ASX 200 Index (ASX: XJO) over the same period.

Where next for the Telstra share price?

The good news for shareholders is that one leading broker believes the Telstra share price can keep rising.

According to a recent note out of Goldman Sachs, its analysts have a buy rating and $4.30 price target on the company’s shares.

Based on the latest Telstra share price, this implies potential upside of almost 11% over the next 12 months before dividends.

And if you include the 16 cents per share fully franked dividend the broker is forecasting in FY 2022, the potential return stretches to 15%.

Why is Goldman positive on Telstra?

Goldman Sachs has a buy rating on the Telstra share price due partly to its belief that the telco giant’s key mobile business will drive growth in the coming years.

This is not only expected to bring an end to dividend cuts, but also lead to a dividend increase in FY 2024. Goldman is forecasting dividends per share of 16 cents through to FY 2023 and then 18 cents in FY 2024.

With the Telstra share price currently trading at $3.88, the latter will mean an attractive fully franked 4.6% yield.

Commenting on its mobile growth, Goldman said: “We forecast +5% MSR growth in FY22/23E driven by: (1) Consumers transacting at pricing $6-7 above FY19; (2) deferred 5G price rises; (3) Enterprise/Small Business returning to growth; and (4) c.$250mn of roaming revenues returning.”

“We also believe that as long as TLS is growing mobile subs, it will be happy to cede share in exchange for a more rational ARPU environment. Finally, we expect service revenue growth and residual productivity savings to drive c.400bps of margin expansion, noting our 43% FY23 margin is still low relative to prior levels (adj. for AASB16/MTAS is 38.7% vs. 41% peak),” it added.

Should you invest $1,000 in Telstra right now?

Before you consider Telstra, you'll want to hear this.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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