Telstra Group Ltd (ASX: TLS) shares have been out of form this year.
So much so, they are trading within a whisker of their 52-week low of $3.75.
One leading broker that believes investors should be taking advantage of this weakness is Bell Potter.
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What did the broker say about Telstra shares?
In response to recent declines, the broker believes that the company's shares are "starting to look reasonable value."
As a result, it has upgraded them from a hold rating to a buy rating with a $4.25 price target.
Based on its current share price, this implies potential upside of 12% for investors over the next 12 months.
In addition to this upside, the broker is forecasting a growing stream of dividends from the telco giant's shares.
It has pencilled in fully franked dividends per share of 18 cents in FY 2024, 19 cents in FY 2025, and 20 cents in FY 2026. If this proves accurate, it will mean dividend yields of 4.75%, 5%, and 5.3%, respectively.
This means a potential 12-month total return of approximately 17% for any investors buying its shares at current levels.
Lack of catalysts but low risk
Bell Potter acknowledges that there are few potential catalysts to support a re-rating for Telstra shares in the near term. However, it feels Telstra makes up for this with its low risk growth. It explains:
In our view Telstra is starting to look reasonable value trading on an FY25 PE ratio of <20x while the average of other reasonable comps in the S&P/ASX 20 is now c.23x. Admittedly the growth outlook for Telstra is not as good as for some of the comps (e.g. Aristocrat, CSL and Goodman Group all have forecast double digit EPS growth in FY25) but Telstra still has reasonable growth (mid to high single digit forecast EPS growth in FY25) plus a good dividend yield (forecast 5.0% fully franked in FY25) and the option of selling part or all of its Infrastructure business (which in our view would unlock value and drive more of a sum-of-the-parts valuation).
There is perhaps a lack of catalysts to drive a re-rate of the multiple up towards the average of the peers but on the flip side there is little risk in our view of the company not achieving its FY24 guidance which implies or suggests a better H2 result relative to H1.
