Telstra Corporation Ltd (ASX: TLS) shareholders received a welcome boost of confidence recently after high-profile stockbroker, Charlie Aitken, upgraded his price target on the stock by nearly 10% to $7.00.
Indeed, the stock rose to a fresh 14-year high ($6.475) yesterday with the market clearly still seeing value in the telecommunications giant.
Not everyone is so bullish on the stock
While Aitken, who is also managing director of Bell Potter wholesale, believes Telstra's solid, fully franked dividend yield will keep investors coming back for more in the low interest rate environment, others believe the stock is well and truly overvalued.
According to Fairfax media, Morgans CIMB maintains a $6.00 price target on the stock and has placed it on the list of overbought/expensive stocks with the shares now trading at a 7% premium to that price. UBS believes the future is even bleaker, providing a price target of just $4.35 (32% below today's $6.43 price tag) due to lacklustre underlying free cash flow growth and estimates of just 3% compound annual growth in earnings before interest, tax, depreciation and amortisation (EBITDA).
It's worth noting too that Aitken is now bullish on Australia's big four banks, after having told investors to sell just months ago. He has a "buy" rating on Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd. (ASX: NAB) and a "neutral" rating on Commonwealth Bank of Australia (ASX: CBA), suggesting their strong (and growing) dividends should help them deliver market-beating performances. While they may climb in the near-term, they certainly don't present as good long-term prospects.
Looking back at Telstra, investors need to remember that, given its sheer size, the company's growth prospects have become more limited. In fact, according to Morningstar's estimates, Telstra's earnings per share in financial year 2017 will hit just 39.6 cents. With the telco already paying out around 90% of its earnings, that rate of earnings growth may not support sufficient dividend growth which may make it difficult to justify the stock's current price, let alone a $7 price tag.
While Telstra's shares could certainly jump higher over the coming 12 months – perhaps reaching Mr Aitken's target – there are far better long-term dividend stocks than Telstra which are worth considering today.
