During the COVID-19 crash of early 2020, the Telstra share price did not fall as dramatically as many other ASX shares did.
Over the last month, Telstra shares have dropped around 2% while the S&P/ASX 200 Index (ASX: XJO) share price has declined around 6% in that time.
Telstra generates relatively consistent profit and cash flow every month, thanks to the essential nature of its services to Australians.
But inflation and interest rates rising present a different conundrum for investors compared to a global pandemic. Is the telecommunications business an opportunity?
Broker opinions on the Telstra share price
As one of the biggest businesses on the ASX, there are plenty of analysts that look at the company.
One of the most recent ratings comes from the broker Morgan Stanley, with a price target of $4.60 and a buy rating. That implies a possible rise that’s comfortably more than 10%.
One of the reasons for its optimism is that in the US, 5G telco peer T-Mobile is seeing good operational progress with customers quickly taking to fixed wireless home internet. So far, the changing economic environment in the US is not hurting consumer demand for telco services.
Another broker that rates Telstra as a buy is Ord Minnett. The price target is $4.50, also implying more than 10% upside. One of the positives that the broker has pointed out is the potential for the telco to sell more of its telco tower assets.
One of the major ways that investors like to value businesses is by looking at the profit direction.
Telstra is now expecting its profit to start rising after years of being impacted by the shift to the NBN.
A few months ago, the company said in its T25 strategy to FY25 that it’s expecting a compound annual growth rate (CAGR) of mid-single digits for underlying earnings before interest, tax, depreciation and amortisation (EBITDA) and a high-teen growth rate for underlying earnings per share (EPS).
In the recent FY22 half-year result, the company reported “strong” mobile growth with EBITDA rising 25%, post-paid average revenue per user (ARPU) rising 5%, and post-paid services increasing by 84,000.
It also reported that underlying EBITDA rose 5.1% to $3.5 billion, while underlying EPS went up 55% to 6.2 cents.
The company said that it is continuing to see growth in the mobile market on the back of its investment in customer-centric plans.
Telstra also boasts that its 5G network is now more than twice the size of Telstra’s nearest competitor, with more than 77.5% of the population covered and almost 2.8 million 5G devices connected to its mobile network.
The business has also made other moves, such as the acquisition of the Digicel Pacific company. Digicel Pacific has 2.5 million customers and leading businesses in PNG, Fiji, Vanuatu, Tonga, Nauru, and Samoa.
The board of Telstra has an intention to grow its dividend over time, as earnings and cash flow grow.
At the current Telstra share price, it’s expecting to pay a grossed-up dividend yield of 5.8%.