For me, the rising BT (LSE:BT.A) share price represents something of a missed opportunity. I had watched it closely around £1, but didn’t make the investment I intended. The stock has since jumped several times.
Shares in the FTSE 100 company are now up 26% over the past 12 months, and up 35% over the past six months. But can the share price push higher? Well, the evidence below suggests that it can.
The future’s bright(er)
”The future’s bright, the future’s Orange” was a slogan by another telecoms company — now EE — but I think it’s fair to say that the future is looking increasingly bright at BT.
For years, the company’s prospects have been held back by uncertainty around the vast costs of laying down fibre to the premises (FTTP) across Britain.
In fact, it costs around £85m to roll out FTTP to 100,000 households. And recent reports suggest the company will aim to reach another 10m homes — inferring that most of its spending on fibre infrastructure is in the past.
Having passed peak capital expenditure, management has now promised £3bn of savings annually through to the end of the decade. This has provided investors with a lot more certainty.
Earnings will improve
Currently, analysts are forecasting BT to earn 14.3p per share in financial year 2025 (this year) and then 15.3p in both 2026 and 2027. Investors will hope that this is part of an improving earnings trajectory that will see continued growth through to the end of the decade. With costs set to fall dramatically, it’s highly possible.
Based on the current price and these forecasts, the telecoms company is trading at 9.8 times forward earnings and 9.1 times earnings for 2026 and 2027. That’s a figure below the index average, and is complemented by a 5.7% dividend yield.
The dividend is actually expected to rise from 8.1p this year to 8.3p in 2026 and 2027. That’s a good sign.
Analysts are backing BT
Stocks are covered by analysts from major financial institutions who issue ‘buy’, ‘sell’, or ‘hold’ ratings and provide price targets — their view on fair value.
Despite the stock rising, analysts are continuing to back BT, with an average share price target of £2.08, inferring that the stock is undervalued by 43.9%.
However, we must recognise that three analysts — out of 17 — hold negative views on the stock and actually believe it’s overvalued.
Generally, this reflects the fact that huge spending on fibre and the resulting net debt position — approximately £20bn — represents a considerable risk.
Undoubtedly this debt position makes BT vulnerable to economic shocks, and I’d suggest it’s the driving force behind any ‘bearish’ opinions.
Labour’s impact
Finally, while I’m positive on BT and its prospects over the long run, I believe that the inflationary impact of the budget may slow interest rate cuts. This is potentially an issue for BT, a company that carries lots of debt.
The post Up 26%, can the BT share price really push higher still? appeared first on The Motley Fool UK.
Like buying £1 for 31p
This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
More reading
These stocks could be my favourite FTSE 100 October fallers
£10,000 of BT shares could net me a £2,110 yearly passive income!
Could the BT share price hit 200p in the next year? Here’s what the experts reckon
5 of the top bargain-basement UK shares to consider buying right now
Anywhere under £4.17, BT’s share price looks a steal to me
James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
