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Telstra share price: how 3 top analysts view the stock

We examine how analysts from three of Australia’s top investment banks view Telstra in the wake of its FY20 results.

Telstra share price remains volatile

With Telstra Corporation (TLS) having now reported its full-year (FY20) results, we examine how analysts from Macquarie, Morgan Stanley and UBS currently view the telco.

Interestingly, while many analysts remain optimistic about Telstra’s outlook – the market has taken a divergent view – with the stock down since reporting its earnings.

Summarising the FY20 release, Telstra reported:

  • Total income of $26.2 billion, down 5.9%
  • A final dividend of 8 cents per share, taking the full-year dividend to 16 cents per share.
  • Profits (NPAT) of $1.8 billion against reported earnings (EBITDA) of $8.9 billion.
  • Looking forward, the telco said it expected its FY21 total income and underlying EBITDA to decline on a year-over-year basis.

Click here to read our complete summary of Telstra’s full-year FY20 results.

Morgan Stanley flags soft FY21 outlook

In response to Telstra's fiscal 2020 result, Morgan Stanley analysts retained their Underweight rating and $3.20 price target on the stock, arguing that the FY21 outlook was weak and the impact of the coronavirus pandemic was greater than expected.

‘One of the lessons from global telco peers which have reported in recent weeks, is they are not immune from COVID impacts (e.g. roaming),’ the investment bank said.

From a dividend perspective, Morgan Stanley expects Telstra’s full-year FY21 dividends to come in at 15 cents per share, below the consensus estimate of 16 cents per share.

Macquarie retains OW rating, flags dividend risk

As with Morgan Stanley, analysts from Macquarie described Telstra’s FY21 outlook as ‘disappointing’, though retained their Overweight rating on the stock, highlighting favourable trends from the mobile segment, as a key positive.

Extrapolating on the impact of Telstra’s forward guidance, with the investment bank described as soft, it was noted that ‘next year and the reduced ROIC target put focus on the issue of dividend sustainability.’

Ultimately, while Macquarie is modelling for a 16 cent per share full-year dividend in fiscal 2021, this outcome was described as a line ball.

Macquarie has a price target of $3.50 on TLS – implying moderate upside at current price levels.

How to trade Telstra, long or short

In the wake of Telstra’s FY20 results, where do you stand: are you bullish or bearish on the telco? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Telstra using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘Telstra’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

UBS: Telstra dividends, a game of risk

Intriguingly, even though UBS described Telstra’s FY20 results as disappointing relative to consensus – the investment bank nonetheless retained its Buy rating and $3.70 price target on the blue-chip telco.

Despite such an outlook, like Macquarie, UBS analysts have questioned the sustainability of Telstra’s current dividend, arguing that:

‘To support a 16cps DPS under current policy settings (70-90% accounting EPS), long-term EBITDA of c$7.5bn-$8.5bn is required.’

With Telstra however guiding for lower FY21 EBITDA and in line with the above considerations, UBS analysts are currently forecasting that the telco will pay out 14 cents per share in dividends across fiscal 2021 and beyond.

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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