Why the Telstra (ASX:TLS) share price is surging higher today

It has been a good day for the Telstra share price…
The post Why the Telstra (ASX:TLS) share price is surging higher today appeared first on The Motley Fool Australia. –

The Telstra Corporation Ltd (ASX: TLS) share price has been a strong performer on Wednesday.

In morning trade, the telco giant’s shares are up 3% to $3.91.

This means Telstra’s shares are now up 30% in 2021.

Why is the Telstra share price rising today?

Today’s strong gain by the Telstra share price appears to have been driven by a positive reaction from brokers to its Digicel Pacific acquisition this week.

For example, in response to the news, the team at Morgans retained their add rating and lifted their price target on the company’s shares to $4.55.

Based on the current Telstra share price, this implies potential upside of just over 16% for investors.

In addition, with Morgans forecasting a 16 cents per share fully franked dividend in FY 2022, the total return on offer with Telstra’s shares increases to ~20%.

What did the broker say about the acquisition?

Morgans was pleased with the acquisition of Digicel Pacific. And while it wasn’t surprised with move, given ongoing media speculation, it was pleasantly surprised with the way the deal was structured and sees it as a positive for the Telstra share price.

It commented: “Telstra will acquire 100% of PNG mobile operator Digicel. Given ongoing media speculation, this deal isn’t a surprise. However, the financial structure is smarter than we had anticipated. TLS is effectively guaranteed a six-year payback on its US$270m equity contribution with the Australian Government insuring the risks.”

The broker expects the deal to be both earnings per share and free cash flow per share accretive over the first six years. This has led to Morgans increasing its forecasts to reflect this.

“We forecast ~3.5% EPS accretion and ~7% FCF per share accretion for the first 6 years (under protected status). Then payments to government equity kick in,” it added.

All in all, this could make the Telstra share price one to consider right now.

The post Why the Telstra (ASX:TLS) share price is surging higher today appeared first on The Motley Fool Australia.

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More reading

Broker gives its verdict on the Telstra (ASX:TLS) share price following Digicel acquisition

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Why Beach, Mineral Resources, Origin, and Telstra are storming higher

ASX 200 (ASX:XJO) midday update: Telstra’s acquisition, Mineral Resources jumps

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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.

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