Telstra Group Ltd (ASX: TLS) shares are under pressure again on Monday.
So much so, the telco giant's shares have just reached a fresh 52-week low of $3.73.
This means that its shares are now down almost 13% over the last 12 months.
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Why are Telstra shares under pressure?
Investors have been selling Telstra's shares in response to higher interest rates.
This is because the company is treated by many investors as a bond proxy. Essentially, it is popular with income investors when yields on savings accounts and bonds are low, but it falls out of favour when yields are high.
So, with many in the market believing that interest rate cuts are off the cards in 2024, Telstra's shares have been deserted by investors. Instead, they are likely to be opting for risk-free options.
But if you're a patient investor, should you snap up the company's shares now while they are down in the dumps? Let's find out.
Is this weakness a buying opportunity?
Although Telstra's shares are likely to remain range-bound until there's some movement with interest rates, it is worth noting that a number of analysts believe a significant upside could eventually be on the cards for investors.
For example, according to a note out of Bell Potter last month, its analysts upgraded Telstra's shares to a buy rating with a $4.25 price target.
Based on the current Telstra share price of $3.73, this implies a potential upside of 14% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividends per share of 18 cents in FY 2024 and then 19 cents in FY 2025. This equates to dividend yields of 4.8% and 5.1%, respectively.
Combined, this means a total potential return in the region of 19% for investors if Bell Potter's recommendation proves accurate.
The broker explains why it upgraded its shares. It said:
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.
