Why the Telstra (ASX:TLS) share price is surging higher today

It has been a good day for the Telstra share price…

| More on:
a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.

Image source: Getty Images

The Telstra Corporation Ltd (ASX: TLS) share price has been a strong performer on Wednesday.

In morning trade, the telco giant’s shares are up 3% to $3.91.

This means Telstra’s shares are now up 30% in 2021.

Why is the Telstra share price rising today?

Today’s strong gain by the Telstra share price appears to have been driven by a positive reaction from brokers to its Digicel Pacific acquisition this week.

For example, in response to the news, the team at Morgans retained their add rating and lifted their price target on the company’s shares to $4.55.

Based on the current Telstra share price, this implies potential upside of just over 16% for investors.

In addition, with Morgans forecasting a 16 cents per share fully franked dividend in FY 2022, the total return on offer with Telstra’s shares increases to ~20%.

What did the broker say about the acquisition?

Morgans was pleased with the acquisition of Digicel Pacific. And while it wasn’t surprised with move, given ongoing media speculation, it was pleasantly surprised with the way the deal was structured and sees it as a positive for the Telstra share price.

It commented: “Telstra will acquire 100% of PNG mobile operator Digicel. Given ongoing media speculation, this deal isn’t a surprise. However, the financial structure is smarter than we had anticipated. TLS is effectively guaranteed a six-year payback on its US$270m equity contribution with the Australian Government insuring the risks.”

The broker expects the deal to be both earnings per share and free cash flow per share accretive over the first six years. This has led to Morgans increasing its forecasts to reflect this.

“We forecast ~3.5% EPS accretion and ~7% FCF per share accretion for the first 6 years (under protected status). Then payments to government equity kick in,” it added.

All in all, this could make the Telstra share price one to consider right now.

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

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

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Telstra wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

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.

More on Share Market News