After rising 32%, is the BT share price on course for 300p?
BT‘s (LSE:BT.A) share price has been on a rollercoaster ride over the past five years. But the FTSE 100 telecom giant’s been in broad ‘recovery mode’ since mid-2024, and over the last year has risen an impressive 32% in value.
The shares have surged as optimism over its recovery plan has fired up investors. Could the FTSE company continue to tear higher? Some City analysts think so — indeed, one broker believes it’ll rise another 58% over the coming 12 months, to 300p per share.
Huge returns
With dividend forecasts also thrown in, it suggests a total shareholder return north of 60%. However, broker estimates can often over- or undershoot their targets.
It’s also important to remember that that 300p price target is just one of several currently doing the rounds. Some 15 analysts currently have ratings on BT shares, providing a healthy range of opinions.
Their average 12-month price target? 202.7p, up ‘just’ 7% from today.
That wouldn’t be a terrible result by any means. If dividends also hit the analyst average, investors would still enjoy a double-digit return. But it’s some way off that earlier bullish estimate.
High valuation
I’m not surprised the City thinks BT’s share price could lose some steam. At 189.9p per share, the telecoms play trades on a forward price-to-earnings (P/E) ratio of 13.6 times.
That’s significantly above the 10-year average of roughly 9 times. The attractive valuation BT shares enjoyed before the bull run began in mid-2024 has disappeared, and suggests much of the good news may now be baked into the share price.
I believe this high valuation might not just limit further price gains — it could prompt a full-blooded correction if news around the company worsens. Right now, this is a serious possibility, in my view.
Are BT shares a Buy?
As I said, BT’s successful recovery plan has lifted its share price recently. Steps to modernise and streamline its operations have captured the imagination, and with good reason. It’s achieved £1.2bn from its £3bn cost-cutting target already by moving customers to less expensive 5G mobile and fibre broadband. This move away from legacy products should also boost margins and reduce client churn.
But has the market overreacted to the impact of these measures? I think so, and I see it hard to justify last year’s share price jump when taking a holistic view of the company. Revenues continue to sink (down 3% in Q3), reflecting tough economic conditions and rising competition. Not even modest sales growth at Openreach could salvage the situation.
Meanwhile, BT’s capital expenditure levels remain high, putting further pressure on profits. It’s also adding stress to the balance sheet, a situation the firm can ill afford given its huge debts. Net debt rose again during Q3, up 3% year on year to £20.9bn.
So can BT’s share price reach 300p? Never say never — after all, few predicted its stunning performance over the last year. Yet on balance, I think it could struggle to repeat recent success. It could be a great Buy for more risk-tolerant investors to think about, but I’m happy to sit on the sidelines.
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Royston Wild 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.
