Australia | Jan 19 2007
By Chris Shaw
Yesterday FNArena posed the question as to whether the bulls or bears were right on Telstra (TLS), but JP Morgan has today given further weight to the bear argument by following Smith Barney Citigroup in downgrading its rating.
The broker has moved to Underweight on the stock from Neutral for essentially the same reasons as given by Citigroup, suggesting the stock is expensive at current levels given it is trading at a premium to the market yet offers almost no medium-term growth in earnings per share.
The broker agrees with the Citigroup assessment that it is too early to factor in success in the transformation program, so with no change in fundamentals the recent share price strength has been overdone.
On the broker’s estimates a valuation of $3.92 is justified, which is a discount of around 13% to the current market price. The broker’s price target is equal to its valuation.
Sell recommendations on the stock are now dominant, the FNArena database showing four Sells compared to two Holds, one Accumulate and three Buy ratings. The average price target of $4.28 is unchanged from yesterday.
Telstra shares are slightly weaker this morning, as at 10.20am the stock was down 2c at $4.40.