The Telstra Corporation Ltd (ASX: TLS) share price was on form on Monday.
The telco giant's shares rose 2% to $3.81 after announcing the acquisition of Digicel Pacific for US$1.6 billion in partnership with the Australian Government.
This means the Telstra share price is now up almost 27% in 2021.
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Where next for the Telstra share price?
Positively for shareholders, the Telstra share price could still push higher from here.
According to a note out of Goldman Sachs this morning, the broker has retained its buy rating and $4.40 price target on the company's shares.
Based on the current Telstra share price, this suggests that there's still 15.5% upside ahead for investors. And with Goldman expecting another fully franked 16 cents per share dividend in FY 2022, this brings the total potential return to approximately 20%.
What did the broker say?
Goldman appears happy with Telstra's acquisition of Digicel Pacific. And while it doesn't expect the deal to have a material impact on the company's earnings, it appears to see it as a low risk boost to its financial performance.
Goldman notes: "As part of this structure, TLS is entitled to receive a preferred return of US$45mn p.a. for 6 years (17% ROE) with significant risk mitigants in place (FX, political, operational risk etc.). Management notes that the transaction meets all of Telstra's M&A criteria including: i) EPS/FCF accretion, ii) generates ROIC > WACC; and iii) is superior for shareholders vs. a buyback, while also being iv) incrementally positive to the companies' FY22/25E targets."
"Although the proposed transaction would have a relatively small contribution to Telstra (4% of FY21 PF underlying EBITDA), we note that: 1) the transaction has significant risk mitigants; 2) is within Telstra's core competency; and 3) is FCF/EPS accretive according to management," it concludes.
