Image source: BT Group plc
B.T. (LSE:BT.A) shares performed well in 2023, rising 10% for the full year. However, the stock is still well below its pre-Covid highs of over 400p. In fact, in a span of five years the stock is down 50%.
What's more, one of the world's largest banks raised its price target for BT to 290p. So could 2024 be the year the telecoms giant breaks 300p? Here is my opinion.
Reasons to be excited
One of the biggest attractions of BT shares lies in its valuation. They are currently trading with a price-to-earnings (P/E) ratio of 6.5, which is significantly lower than the FTSE 100 average of about 14. This seems like a good deal, especially considering that the most promising stocks are generally valued at P/E ratios below 10.
However, when comparing this metric with Vodafone and Deutsche Telekomwhich have P/E ratios of 2.1 and 5.4 respectively, valuing BT shares is not so simple.
However, the stock boasts an impressive dividend yield of 6.8%. This substantial return could serve as a valuable addition to my portfolio, potentially allowing for passive income generation and the opportunity to reinvest profits into stocks to amplify overall gains.
Furthermore, analysts from J.Morgan increased its price target to 290p for BT. This represents a whopping 134% premium to the current share price of 126p. It should be noted that this is just a forecast and other research analysts have bearish outlooks on the stock. However, it always fills me with confidence when institutional actors support actions.
BT has also made some interesting announcements for its customers in recent months. In October, it announced that customers would get access to US broadband deals. EE is one of the UK's leading broadband providers and I hope the product merger will benefit customers.
BT has also taken significant steps to expand its 5G network across the country. BT, now covering over 1,000 cities across the UK, is a leader in new technology.
Not everything is simple
BT's balance sheet remains a persistent concern for me. The company currently operates with almost £20bn of debt and I find it difficult to overlook this factor. This concern is amplified when I consider that BT's current market capitalization is just over half that figure, currently £12.5bn.
Interest rates remain persistently high and currently stand at 5.25% in the UK. It has been announced that the Bank of England is reluctant to start cutting this figure until at least the third quarter of 2024. Higher rates come with increased interest payments on debt. In the case of BT, these payments will be in the tens of millions. This could continue to cap the stock, potentially muting any share price gains.
Can stocks explode?
So will the stock hit 300p in 2024? Unfortunately, I don't have a crystal ball; If I had it, I would have beaten the stock market a long time ago! From an outside perspective, I think there is a lot to be excited about. The stock also looks cheap and has good institutional backing.
However, I don't think these positives will contribute to the share price doubling. I think debt issues could also continue to limit the stock. For this reason, I will not be buying shares today.
