Target price for Telstra

Now that Telstra has broken through the key resistance and psychological barrier at $3.00 one of questions that investors have been asking is: what is Telstra’s target price now?

On the whole, it appears that a combination of technical and fundamental factors could combine to see Telstra trade higher in the short-term.

In a falling market, it’s often considered that the traditional defensive plays are the safest bet as they may insulate investors from erratic economic data and a rising (or falling) Australian dollar. Telstra offers a massive 9.4% dividend yield as well, which on its own could entice investors to buy as we get closer to the ex-dividend date on 22 August.

It would be remiss to talk about Telstra and not mention the $9 billion NBN which Telstra and the government are believed to be formalising as early as this week. There is a hidden factor that benefits Telstra here – the fact that they own the copper cable network in remote areas of Australia. This means that regardless of which internet provider people go for they will be using it via Telstra’s infrastructure.

There have been many broker upgrades in recent times as well and the Future Fund’s selling down of the stock appears to be over (for now). By analysing these factors alone we can see why Telstra is off its recent lows.

So what is Telstra’s target price? Lets take a look at the chart first.

Telstra Share Chart
May 2010 to May 2011

 

The first factor we can see is how many times Telstra has challenged the $3 barrier and failed to breach it: once in November 2010, once in January 2011, then it came very close in February 2011. Now that it has it is considered to be in “break out territory” we can measure the recent trough in Telstra’s price in March to the break out price at $3 which equals 40c. One method is to use this trough to the breakout price (40c) and add it to the break out price to give us a target price. With that in mind we estimate $3.40 as being a potential price target. Remember that in this period an investor will also likely pocket Telstra’s juicy dividend (which will impact the share price).

It will be an interesting stock to follow especially if the global market headwinds remain in place to give us a “risk off” environment. Defensive plays can make attractive buying in these times and Telstra does have an interesting story to tell.

About benlebrun

Market analyst at CMC Markets
This entry was posted in Market, Shares, Stocks, Trading and tagged , , . Bookmark the permalink.

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