Are Telstra shares a no-brainer for income after hitting a fresh 52-week low?

Let's see what analysts think of the telco giant's shares at this level.

| More on:
A male sharemarket analyst sits at his desk looking intently at his laptop with two other monitors next to him showing stock price movements

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

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.

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL and Goodman Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on 52-Week Lows

A businesswoman gets angry, shaking her fist at her computer.
52-Week Lows

3 ASX shares at 52-week lows or worse

Times have been hard for owners of these shares.

Read more »

Blue chips with stock written on them.
52-Week Lows

These 3 ASX blue-chip shares just hit multi-year lows. Am I buying?

Here's what I'd do with these battered blue-chip shares...

Read more »

Worker at a gas and oil pipeline.
Energy Shares

Are Woodside shares dirt cheap at two-year lows?

This energy giant's shares just hit a two-year low.

Read more »

a sad looking engineer or miner wearing a high visibility jacket and a hard hat stands alone with his head bowed and hand to his forehead as he speaks on a mobile telephone out front of what appears to be an on site work shed.
Materials Shares

Core Lithium share price tumbles to multi-year low following quarterly update

This lithium miner has released its first update since suspending mining activities.

Read more »

Piggy bank sinking in water symbolising a record low share price.
52-Week Lows

9 ASX 200 shares tumbling to 52-week lows today

Israel's strike on Iran on Friday dragged several ASX 200 shares to new depths.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
52-Week Lows

5 ASX 200 stocks at 52-week lows

These shares are down in the dumps on Tuesday.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Industrials Shares

Why is this ASX 200 stock crashing 16% to a 52-week low on Tuesday?

This stock is having a very red start to the week.

Read more »

A man with his back to the camera holds his hands to his head as he looks to a jagged red line trending sharply downward representing the ASX tech share sell-off today
52-Week Lows

3 ASX shares sinking to 52-week lows today

These ASX shares are having a bit of a nightmare this year.

Read more »