This analyst rates the Telstra (ASX:TLS) share price a buy

Is it time to buy Telstra’s shares?

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The Telstra Corporation Ltd (ASX: TLS) share price has been among the best performers on the S&P/ASX 200 Index (ASX: XJO) this year.

Since the start of the year, the telco giant’s shares have risen a massive 31%.

This means the Telstra share price has more than tripled the return of the ASX 200 index over the same period.

Where next for the Telstra share price?

Despite its impressive gain this year, one leading broker believes the Telstra share price can keep rising.

According to a recent note out of Goldman Sachs, its analysts have retained their buy rating and lifted their price target on the company’s shares to $4.40.

Based on the latest Telstra share price of $3.95, this implies potential upside of 11% over the next 12 months.

And with the broker expecting another 16 cents per share fully franked dividend in FY 2022, the potential return stretches to just over 15%.

What did the broker say?

Goldman was pleased with the company’s recent T25 update and notes that management is targeting strong earnings growth in the coming years.

The broker commented: “Telstra held its T25 Investor Day, with the key strategic/financial updates consistent with our prior expectations. FY25 targets for strong earnings growth were provided, implying a high degree of confidence in the outlook, given expectations for mid-single digit EBITDA growth p.a. and a similar quantum of mobile service revenue growth. However despite EBITDA being in-line with GSe, expectation for high teens EPS growth was marginally below, given D&A, interest & minorities.”

Goldman was also pleased to see its dividend policy revert back and is expecting share buybacks in the future.

It explained: “Telstra also revised its dividend policy back towards 100% of EPS, as it prioritizes growing franked dividends over time, while using the c.$600mn p.a. (c.5¢ps) of additional FCF to invest for growth or return to shareholders. On-market buybacks & un-franked dividends were highlighted, but we expect buybacks to be prioritized given the focus on growing franked dividends.”

In light of the above, the broker believes the Telstra share price is in the buy zone right now.

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

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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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