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?

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The Telstra Group Ltd (ASX: TLS) share price has dropped by 16% over the past year. Some investors may be considering whether this is a good time to invest, so I recommend evaluating the FY25 outlook (and beyond) before making a decision.

Telstra may be one of the more defensive ASX shares. Given how integral having an internet connection is these days, it may be a surprise to some investors that Telstra shares have dropped as much as they have.

The ASX telco share's enterprise division has been struggling in recent times, though Telstra recently revealed plans to try to turn this segment around.

Let's consider how the business may perform in FY25.

FY25 targets

When Telstra announced its initiatives to improve the enterprise segment, it also gave some early FY25 guidance.

It's expecting to deliver underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of between $8.2 billion and $8.3 billion. For FY25, the business has delivered guidance for underlying EBITDA of between $8.4 billion and $8.7 billion, so there could be growth of at least $100 million next financial year.

The company also reaffirmed its commitment to delivering its T25 compound annual growth rate (CAGR) ambitions for underlying EBITDA, earnings per share (EPS) and return on invested capital (ROIC) growth. However, the telco has said it's not going to raise prices for subscribers in line with inflation.

Between FY21 to FY25, Telstra aims to grow underlying EBITDA at a CAGR in the mid-single digits and underlying EPS at a high-teen CAGR.

The ASX telco share's management said it has confidence it can keep growing mobile revenue and EBITDA.

Analyst expectations for Telstra shares

The broker UBS is expecting Telstra to generate $2.05 billion of net profit after tax (NPAT) and pay a dividend per share of 18 cents in FY24.

UBS then expects Telstra to deliver slight growth in FY25 for revenue, earnings before interest and tax (EBIT), NPAT and dividend per share.

In FY25, UBS predicts Telstra could make $2.06 billion of NPAT and pay a dividend per share of 19 cents. That would mean Telstra shares have a grossed-up dividend yield of 7.5%. The broker also suggests the company's net debt could slightly improve to $12.6 billion.  

UBS currently has a price target of $4.40 on Telstra shares, which implies a possible rise of around 20% in the next 12 months.

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 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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