Would Warren Buffett buy Telstra shares?

Would Telstra shares attract the great investor from Omaha?

| More on:
A couple makes silly chip moustache faces and take a selfie on their phone.

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

Owning Telstra Group Ltd (ASX: TLS) shares gives investors exposure to the leading telco in Australia. That could be the sort of investment that might appeal to Warren Buffett. But, I'd suggest he would want to analyse the business before deciding to buy.

Warren Buffett is one of the world's leading investors who has led Berkshire Hathaway to become one of the world's largest businesses by buying quality companies with long-term growth potential. His investment returns have been an average of around 20% per annum over the decades.

There are a few different things Buffett likes to look for, so I'll look at a couple of those factors.

Economic moat

Telstra is seen as having the strongest telecommunications network in Australia, with wider coverage, more spectrum and a greater number of subscribers. That could be the kind of economic moat Buffett likes to see.

The company has invested heavily in 5G to ensure that it continues to have the best network. According to Telstra's FY24 first-half result, the company's 5G population coverage reached around 87%, with 48% of mobile traffic on 5G.

Telstra's ownership of spectrum and its vast network reach give it a strong economic moat that Warren Buffett would like, in my opinion.

In the last couple of years, we've seen Telstra feel confident enough in the appeal of its network and loyalty of subscribers to increase prices in line with inflation.

I think Buffett would also like the fact that almost every household and business is paying for telecommunication services, making telecommunications a very defensive industry.

Growth

Warren Buffett usually likes to look at businesses that have good long-term potential.

Telstra has a significant market share already, so I wouldn't say it's likely to grow its market share a lot.

However, the company is winning a lot of new subscribers. In the HY24 result, it reported its mobile services in operation (SIO) rose 4.6% year over year, which represented an increase of 625,000. If Telstra keeps winning significant numbers of new subscribers, it can deliver good profit growth for shareholders.

Telstra is investing in several areas, including fixed wireless broadband for households, intercity cable infrastructure, cybersecurity, and more.

The HY24 net profit after tax (NPAT) rose by 11.5% to $1 billion, and the areas I mentioned above could help deliver profit growth in the coming years.

Has Warren Buffett invested in US telcos?

While we've never heard of Buffett investing in Telstra shares before, he has previously invested in some US telco shares.

However, he chose to dump the AT&T shares quickly after acquiring them, and Verizon didn't last much longer in the portfolio. But, in the last few years, Buffett has bought T-Mobile shares.

Those previous investments do not guarantee that Buffett would choose to invest in Telstra shares today, but they do show that he could be interested in the sector.

Are Telstra shares trading at a reasonable price?

Warren Buffett hasn't outlined exactly what valuation metric he likes to focus on when investing within Berkshire Hathaway's portfolio. It's also not clear what margin of safety he'd want either when it comes to price.

According to the broker UBS, Telstra shares are valued at 20x FY24's estimated earnings. Looking ahead to the 2028 financial year, Telstra shares are valued at 13.5x FY28's estimated earnings.

I think Warren Buffett would be intrigued by Telstra shares after their 15% fall in the past year. However, there's a fair chance the Omaha investor would prefer an even cheaper price before considering investing.

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

More on Communication Shares

A woman shows her phone screen and points up.
Communication Shares

Here is the earnings forecast out to FY28 for Telstra shares

The telco giant recently hiked its mobile prices again.

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Aussie Broadband share price implodes 18% amid AI investment

ASX investors are bidding down the Aussie Broadband share price today. But why?

Read more »

Smiling couple looking at a phone at a bargain opportunity.
Communication Shares

Telstra stock pays a massive 7% dividend, and now could be a great time to buy

The dividends from Telstra could be very rewarding in the coming years.

Read more »

A man wearing a colourful shirt holds an old fashioned phone to his ear with a look of curiosity on his face as though he is pondering the answer to a question.
Communication Shares

Is the Telstra share price good value in July?

Here's what one leading broker is saying about the telco giant.

Read more »

A female executive smiles as she carries out business on her mobile phone.
Communication Shares

Telstra share price lifts off alongside its mobile pricing plans

ASX 200 investors are bidding up the Telstra share price today.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Communication Shares

Down 16% over 12 months, the Telstra share price could explode 20% from here!

ASX brokers are clamouring over Telstra shares right now.

Read more »

Man on a laptop thinking.
Communication Shares

How come the Telstra share price crashed 16% in FY 2024?

Telstra shares massively underperformed the ASX 200 in FY 2024. But why?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Communication Shares

Do Telstra shares have a strong outlook for FY25?

Is this ASX telco stock about to make a roaring comeback in the next financial year?

Read more »