Telstra Group Ltd (ASX: TLS) shares have been out of form over the past 12 months.
During this time, the telco giant's shares are down 0.5% to $4.03.
This compares unfavourably to a 12% gain by the ASX 200 index over the same period.
While this underperformance is disappointing, let's now look at three reasons why this could be your opportunity to buy.
3 reasons to buy Telstra shares
Analysts at Goldman Sachs have named three key reasons why they think the telco giant is a top pick for investors right now. The first is the low risk earnings and dividend growth the company is delivering. It said:
We believe the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned through its mobile business, is attractive.
Another reason to be positive on Telstra is the potential for unlocking value from asset sales. The broker explains:
We also believe that Telstra has a meaningful medium term opportunity to crystallise value through commencing the process to monetize its InfraCo Fixed assets – which we estimate could be worth between A$22-33bn. Although there is some debate around the strategic benefits, we see a strong rationale for monetizing the recurring NBN payment stream, given its inflation linked, long duration cash flows could be worth $14.5bn to $17.9bn, with no loss of strategic benefit.
A final reason that Telstra shares could be a buy is their valuation. While appearing full at first glance, the broker believes they are attractively priced when you dig deeper. It said:
Although at a headline level, Telstra valuation appears relatively full (vs. peers and vs. 10Y yield), we note: (1) Adjusting out NBN recurring payments (a unique asset), Telstra trades at a much more compelling multiple; (2) Although its yield spread is compressed vs. history, when factoring dividend growth this is more attractive. Hence in an uncertain 2024 we rate Telstra Buy.
Good expected returns
The note reveals that Goldman Sachs has a buy rating and $4.35 price target on Telstra's shares. Based on its current share price, this implies potential upside of 8% for investors over the next 12 months.
But the returns won't stop there. There are dividends to come. The broker is expecting Telstra to lift its fully franked dividend to 19 cents per share in FY 2025.
This represents an attractive 4.7% dividend yield and boosts the total potential return to almost 13%.
