Are Telstra shares in the buy zone? Here's what Bell Potter thinks

Is it time to buy this telco giant's shares? Let's find out.

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Telstra Group Ltd (ASX: TLS) shares are out of form on Wednesday.

In afternoon trade, the telco giant's shares are down 1% to $3.79.

This means they are now down by 4% over the last 12 months.

Should you buy Telstra shares?

One leading broker that reckons investors should be keeping their powder dry for the time being is Bell Potter.

Earlier this week, the broker initiated coverage on the company with a hold rating and $4.15 price target. This implies a potential upside of 9.5% for investors over the next 12 months.

In addition, Bell Potter is forecasting an 18 cents per share fully franked dividend in FY 2024. This equates to a 4.3% dividend yield, boosting the total potential return to almost 14%.

This falls just shy of the 15% return that is required for the broker to issue a buy rating, hence its hold rating.

What did the broker say?

The broker believes that Telstra shares look fairly valued at current levels. It explains:

Our price target for Telstra is $4.15 which is determined through a blend of four valuations: PE ratio, DCF, DDM and SOTP. This PT is a modest premium to the share price and, combined with the forecast yield of 4.7%, equates a total expected return of 12.8% [now 14%]. This is less than the required 15% or more for a BUY so we initiate with a HOLD recommendation. In our view the stock looks fairly valued on an FY24 PE ratio of c.21x with CAGR in underlying EPS between FY21 and FY25 in the high teens. Notably, the forecast yield of 4.7% is not dissimilar to current six to twelve month term deposit rates though the dividend is fully franked.

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 has positions in and has recommended Telstra Group. 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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