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Telstra Corporation Ltd (ASX:TLS) shares rise on broker upgrade

James Mickleboro

I haven’t been able to say this often over the last couple of years, but the Telstra Corporation Ltd (ASX: TLS) share price has been one of the best performers on the Australian share market today.

In afternoon trade the telco giant’s shares are up 3.5% to $2.86.

Why are Telstra’s shares pushing higher?

Today’s push higher appears to be attributable to a positive broker note out of Ord Minnett this morning.

According to the note the broker has upgraded Telstra’s shares from a hold rating to accumulate with a price target of $3.30. This price target implies potential upside of over 15% excluding dividends over the next 12 months.

Ord Minnett has upgraded Telstra ahead of its investor day on Wednesday of next week. The broker believes that management could use the event to announce further cost savings of up to $1 billion and product bundling initiatives.

In addition to this, the broker has suggested that Telstra could even go so far as to announce plans to launch a structural separation.

This idea has been suggested previously and would make a lot of sense in my opinion. The idea is that Telstra could keep its infrastructure business (mobile towers, data centres and copper network) and spin off its retail business into a new listed company.

This would give investors the opportunity to invest in either a slow growing dividend-paying infrastructure business or a fast-growing retail business that is likely to retain its profits in order to reinvest in growth opportunities.

Should you invest?

While I do think that Telstra is attractive at these levels and believe it has opportunities to reduce its costs significantly, I wouldn’t be in a rush to invest ahead of the investor day event. Instead, I would wait for all the details of its plans to be revealed before weighing up whether or not to invest.

I’d also stay clear of industry peers Vocus Group Ltd (ASX: VOC) and TPG Telecom Ltd (ASX: TPM) until trading conditions improve.

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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, TPG Telecom Limited, and Vocus Communications 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.