Macquarie sees more upside in Telstra shares – What are they worth?

Telstra shares are up 34% over the past year, and Macquarie thinks there's more to come.

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Would you believe me if I told you that the Telstra Group Ltd (ASX: TLS) share price is up 34% over the last year?

Well, believe it because it's true, and analysts at Macquarie expect the share price to continue rising over the coming year. Macquarie lifted its 12-month Telstra share price target to $5.28, a hefty 34% increase from its previous price target.

Admittedly, Macquarie analysts have been lagging on this one. Their previous price target was $3.93, and with Telstra shares currently trading at $4.72, that implied a 15.8% total shareholder return over the next year, including dividends. Not bad for a company best known for mobile plans and copper wires.

So what's changed?

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Image source: Getty Images

A bold strategy shift: Network as a Product (NaaP)

The biggest story in Macquarie's note is Telstra's shift to what it calls Network as a Product. Instead of selling connectivity as a generic service, Telstra wants to break it into differentiated products, like for example, network functions as APIs that developers can plug into.

Telstra's goal is for over 50% of communications revenue to come from NaaP by FY30. Macquarie sees this strategy as key to increasing ARPU (average revenue per user), justifying future price increases, and potentially opening up new revenue streams from global digital platforms, such as via its Aduna partnership.

Cost cuts and AI-driven productivity

Telstra has also identified $4.5 billion in cost-saving opportunities across software development, sales and support, and network operations. These cost cuts are backed by AI and automation. An example is using AI to reduce truck rolls or automate call centre interactions.

Macquarie is only factoring in about 12% of those savings by FY30, suggesting that there is additional upside if execution is stronger than expected. The real prize is long-term margin expansion and higher return on capital.

Dividend growth and buybacks on the table

One underappreciated theme is Telstra's improving balance sheet flexibility. Macquarie estimates the company will have $6 billion in incremental debt capacity by FY30, which could support strategic infrastructure investments or more generous capital returns for shareholders.

Macquarie notes a subtle but important shift in language from a "sustainable" dividend to a "sustainable and growing" dividend. That's often code for dividend increases to come.

Price rises are sticking

Telstra has also raised prices on its mobile plans, including both Telstra-branded and Belong products. The $5/month hike will kick in from 1 July 2025.

Macquarie estimates this will lift postpaid ARPU by around $3.12 in the first half of FY26, and notes that every 1% lift in ARPU boosts earnings per share by 2.5%. Competitors like Optus and Vodafone have also raised prices, which makes it unlikely that customers will leave Telstra in droves on account of cheaper plans elsewhere.

Foolish Takeaway

Telstra's strategy shift is bold, and while execution risk remains, the potential upside is meaningful. Macquarie's valuation upgrade to $5.28 per share is based on stronger free cash flow, improved margins, and the company's growing ability to extract more value from its network.

Telstra is not a high-growth tech stock, but it's starting to look like a better-quality, stable dividend payer than many give it credit for. With a 3.9% dividend yield, rising EPS, and multiple levers for growth or capital returns, Telstra remains a compelling company to consider for income-focused investors.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group and 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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