Unfortunately for its shareholders the Telstra Corporation Ltd(ASX: TLS) share price touched on a seven-year low of $2.80 this morning.
This brought the telco giant’s 12-month share price decline to a sizeable 37%.
Why are its shares at a seven-year low?
Despite Telstra advising that it expected to hit the low-end of its EBITDA guidance and the high-end of its cash flow guidance in FY 2018, many shareholders rushed to the exits after management warned that tough trading conditions were unlikely to ease in FY 2019.
Another slight concern that appeared to weigh on sentiment was a decline in average revenue per user (ARPU) in its postpaid mobile business.
The arrival of TPG Telecom Ltd(ASX: TPM) in the mobile space with some aggressive plans has many concerned that mobile ARPU could fall further in FY 2019 as competition heats up.
One broker that is especially bearish is Citi. In response to the update it released a broker note which revealed that its analysts had retained their sell rating and slashed the price target on the company’s shares to a lowly $2.70.
It suspects that Telstra will be unable to continue paying its 22 cents per share dividend in the future unless it takes drastic action to stop the rot.
But not everybody is bearish on Telstra. A note out of Deutsche Bank reveals that its analysts have retained their buy rating and $3.90 price target on the company’s shares. Furthermore, the broker has forecast a lift to its dividend in FY 2019 to 23 cents per share.
Should you invest?
It’s been a long time since I have seen a share as divisive as Telstra on the Australian share market.
While I am optimistic that things will improve over the next 12 months and that 5G internet could be a key driver of long-term growth, investors may want to keep their powder dry until the release of its full-year results.
At that point the impact of TPG Telecom on its mobile business may be better understood.
In the meantime, I think Macquarie Telecom Group Ltd.(ASX: MAQ) could offer investors a great mix of growth and dividends.
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.