Why the Telstra (ASX:TLS) share price outlook suddenly improved last week

The Telstra share price has two big tailwinds that drove its outperformance last week.

| More on:
Share price outlook a man raise his arms to the sun as it rises with the year 2021 in the background, indicating a bright future on the ASX share market

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The outlook for the Telstra Corporation Ltd (ASX: TLS) share price is looking brighter and it isn't only because of the $2.8 billion part-sale of its towers business.

While the transaction certainly caught the imagination of the market and prompted some analysts to upgrade their price target on the Telstra share price, there's another reason to be bullish on Australia's largest telco.

Its competitor Vodafone removed all promotional discounts on its SIM-only plans last week, according to Goldman Sachs.

Telstra share price the biggest winner

Shareholders liked the news. The TPG Telecom Ltd (ASX: TPG) share price jumped 1.1% last week to $6.22 (TPG merged with Vodafone).

That's ahead of the 0.3% gain by the S&P/ASX 200 Index (Index:^AXJO), although the Telstra share price is the big winner with a 5.4% surge.

But as I mentioned, Telstra's surge was partly driven by its large divestment and promise of a $1 billion plus capital return.

Price rises and expanding margins

The move by Vodafone means an effective price increase for Vodafone customers of between $5 and $15 a month, or 13% to 25%.

"These changes have driven Vodafone (and industry) entry level pricing up to A$40 [a month]," said the broker.

"We are pleased with this development, which continues to support our high conviction on quantum of mobile market repair in Australia."

Conducive competitive environment

The return of a more rational competitive environment is good news for Telstra's margins. Vodafone is the last of the big three mobile operators to lift prices after Optus implemented price rises of a similar magnitude in May.

Telstra was the first to move and for a while, it looked like the odd one out. It was a calculated gamble that paid off as it could have lost market share if competitors kept their prices low.

Goldman noted that Telstra's pricing plans offered at JB Hi-Fi Limited (ASX: JBH) was unchanged. This is good news as the broker believes that this was previously seen as a key inhibitor to Vodafone raising pricing.

Telstra share price could be cum-upgrade again

What it also means is that Telstra sees the earnings benefit of higher average revenue per user (ARPU) outweighed the potential lost subscribers.

"These changes support our view that Telstra is set to grow ARPU meaningfully ahead of consensus expectations across FY21-23E," said Goldman.

"And [Telstra] will also likely introduce further price rises in FY22E (given its premium is now +20% vs. its +35% 3Y average, despite expanding 5G lead)."

The broker is recommending Telstra as a "buy" with a 12-month price target of $4.20 a share. It rates the TPG share price as "neutral" with a 12-month price target of $5.90 a share.

Should you invest $1,000 in Pilbara Minerals Limited right now?

Before you buy Pilbara Minerals Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Pilbara Minerals Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Brendon Lau owns shares of Telstra Corporation Ltd and TPG Telecom Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Three people in a corporate office pour over a tablet, ready to invest.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.
Share Market News

ASX shares in April: 8 key takeaways according to Macquarie

Here are eight key takeaways from April, according to a new note from the broker.

Read more »

A shocked man holding some documents in the living room.
Broker Notes

Macquarie's take on Judo Capital shares after suddenly falling 19% yesterday?

Judo Bank was the ASX's top-performing banking stock in 2024.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Broker Notes

5 top ASX stocks to buy in May

These stocks could be quality picks for investors this month according to analysts.

Read more »

Person pressing the sell button on a smartphone.
Broker Notes

Sell alert! 3 ASX shares the brokers are calling time on

Brokers say it's time to hit the sell button on these ASX shares.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Share Market News

What is next for ASX 200 shares after last month's upheaval?

Macquarie reveals its outlook for ASX 200 shares in May in a new research note published today.

Read more »

Happy young couple saving money in piggy bank.
Broker Notes

Invest $500 in these top ASX shares in May

Analysts think these shares could be in the buy zone for the month ahead.

Read more »

Person pointing finger on on an increasing graph which represents a rising share price.
Broker Notes

These ASX 200 shares could rise 30% to 40%

Let's see what analysts are saying about these buy-rated shares.

Read more »