Could July be a good month for the Telstra share price?

Experts have made a positive call on the telco’s shares.

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Key points

  • Brokers believe the telco could be an opportunity to buy in July
  • Telstra is doing a number of things to try to grow profit, including expanding its 5G coverage
  • The business is also working on cutting more costs and eventually growing the dividend

The Telstra Corporation Ltd (ASX: TLS) share price may be an opportunity in July 2022, according to experts.

As Australia’s largest telecommunications business, Telstra hasn’t escaped some of the volatility seen across the ASX share market.

Since the start of 2022, Telstra shares have fallen by around 9%. The broker Ord Minnett thinks Telstra can regain this lost ground, and more, over the next 12 months.

Latest views on the Telstra share price

The broker Ord Minnett recently slightly reduced its price target for Telstra to $4.65. A price target is where it thinks the share price could be in 12 months.

If the Telstra share price was to reach $4.65, that would equate to a rise of around 21% from the current price of $3.85.

The broker Morgan Stanley has a price target of $4.60 on Telstra shares. That implies a possible rise of around 19%.

This broker suggests the strength shown by T-Mobile (a 5G leader in the US) is good news for Telstra as fixed wireless broadband captures household attention quicker than anticipated. Telstra is seen as the 5G leader in Australia.

Profit growth initiatives

Telstra is doing several different things to try to grow profit for shareholders.

The telco has just launched its T25 strategy, aiming to deliver growth, “exceptional customer experiences”, and continued network and tech leadership.

It wants to be the 5G market leader, so it’s extending its 5G network coverage to 95% of the population. Telstra has identified $500 million of net fixed costs to cut between FY23 to FY25.

It hopes to grow underlying earnings before interest, tax, depreciation and amortisation (EBITDA) at a compound annual growth rate (CAGR) in the mid-single digits while growing underlying earnings per share (EPS) at a CAGR in the high-teens to FY25.

Telstra also plans to maximise its fully franked dividend for shareholders and grow it over time. Dividend growth could be helpful for the Telstra share price.

Another move by Telstra to try to grow and diversify its earnings was the acquisition of Digicel Pacific, which is a market leader in several Pacific island nations.

The upfront cost to buy this business was US$1.6 billion, although Telstra is only contributing US$270 million of equity. The Australian government will provide the rest of the funding through non-recourse debt facilities and equity-like securities.

Telstra said the overall Digicel Pacific business made US$233 million of EBITDA in the financial year to 31 March 2021.

One of the final things Telstra is doing that could help earnings in the shorter and longer term is increasing prices. The company said it would increase prices in line with CPI inflation in July and could raise prices annually from now on.

As the price increase implementation happens, investors may factor that into their thoughts.

Telstra share price snapshot

Despite the recent decline, the Telstra share price has risen 2% over the past year. It was relatively flat in June, down by 0.8%.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison 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 has positions in 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 Scott Phillips.

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