Telstra Group Ltd (ASX: TLS) shares have thoroughly underperformed the market over the past 12 months.
Although during this time the telco giant's shares have risen almost 2%, this is well short of what the S&P/ASX 200 Index (ASX: XJO) has achieved.
Over the same period, the benchmark index has risen over 18%. And that doesn't include dividends!
So, while this is disappointing for shareholders, has it created a buying opportunity for non-shareholders? Let's take a look at what a few brokers are saying.
What are brokers saying about Telstra shares?
The broker community is overwhelmingly bullish on the telco leader with only one of the major brokers rating it as a sell and the rest having buy ratings.
The outlier is Morgans, which has a reduce (sell) rating and lowly $3.20 price target on its shares. Based on its current share price of $3.87, this implies potential downside of 17% for investors over the next 12 months. It said:
Adjusting for growth The FY24 underlying result came in towards the lower end of expectations. NPS (customer advocacy) and return on capital continue to improve while the heavily lifters remained Mobile (61% of EBITDA and +9% yoy) and InfraCo Fixed (21% of EBITDA and +6% yoy). Growth here more than offset declines elsewhere. We recommend a REDUCE rating.
Elsewhere, the team at Bell Potter is tipping Telstra shares as a buy with a $4.30 price target. This suggests that upside of 11% is possible for investors from current levels. Bell Potter commented:
We have lowered the discount we apply in the PE ratio valuation from 15% to 10% due to the good [FY24] result, soft upgrade to guidance and potential material uplift in FCF in FY26. There are no other changes to the key assumptions in our other valuations. The net result is a 2% increase in our PT to $4.30 which is a 9% premium to the share price and we maintain our BUY recommendation.
We believe the stock looks reasonable value on an FY25 PE ratio of c.20x when all of the comps in the S&P/ASX 20 trade on >20x. We also believe the forecast fully franked yield of 4.8% is attractive when CBA's forecast yield is now <4%. The yield is comparable, however, to the other banks but Telstra's dividend is expected to grow whereas the banks are not so much.
Analysts at Goldman Sachs have a similar view. They currently have a buy rating and $4.35 price target on its shares. This implies potential upside of 12.5% for investors buying at current prices. Its analysts 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.
Overall, the consensus is that Telstra's shares could deliver the goods for investors over the next 12 months.
