Bell Potter's Charlie Aitken is nothing but glowing about the giant telco's potential, dubbing Telstra Corporation Ltd (ASX: TLS) a growth utility with regulatory certainty. Whatever that means.
Today, the outspoken analyst raised his 12-month price target for the telco stock to $6.40, from $6.20, after Telstra had completed its negotiations with NBN Co.
As he told his clients today, "The beacon of certainty among blue chips looks a better investment than any Australian bank in the medium-term and will go to a premium."
Telstra is expected to continue growing earnings per share and dividends, something many analysts have considered virtually impossible. How could Australia's largest telco continue to grow, now that smartphone subscribers have reached a plateau?
Many analysts forget that there are more strings to Telstra's bow than just a mobile phone network. The company is rolling out a national wi-fi network, is likely to play a larger part in developing and rolling out the National Broadbank Network (NBN), and has scope to win the contracts/tenders for maintenance and upkeep of the old copper network. The copper wires are being signed over to NBNCo.
Mr Aitken is forecasting Telstra to generate 34 cents in earnings per share in the 2015 financial year, and expects the telco to upgrade its legendary dividend to a whopping 32 cents – fully franked. At today's prices that puts Telstra on a dividend yield of 5.6%, which grosses up to 8% to include those franking credits.
Source: Company reports
That puts term deposit rates of around 3% to shame, as well as the yields available from many of Australia's top 200 stocks. Mr Aitken says given the uncertainty around other stocks in the S&P/ASX 20 (Index: ^AXTL) (ASX: XTL), Telstra stands out as the 'beacon of certainty'.
Stocks such as Woodside Petroleum Limited (ASX: WPL), BHP Billiton Limited (ASX: BHP), Origin Energy Ltd (ASX: ORG) and Santos Ltd (ASX: STO) are all facing falling commodity prices, as is Rio Tinto Limited (ASX: RIO). Then you have the big four banks, which are facing lower earnings on the back of being forced to hold more capital, and Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES) – the owner of Coles – reported to be facing rejuvenated competition.
Given those factors, it's not hard to see why Telstra stands out. If you don't already hold Telstra shares, you might want to consider revisiting why not.
