Telstra shares continue to fall after job cuts announcement
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The news: Telstra's share price continued to slide in morning trade on the ASX, a day after closing 2.18% lower, as analysts slashed their target price on the stock following news of major cuts to the telco's workforce and the removal of inflation-linked price increases for mobile customers.
The numbers: Telstra's shares were down 3.8% to $3.44 by 11:30am AEST.
Jarden analysts retained their 'buy' rating on the stock but reduced their target price from $4.40 to $4. They also lowered their earnings per share estimates for Telstra by 0.6%, 10.5% and 7.7% for the three financial years to FY26.
Morgan Stanley analysts did likewise, keeping their 'overweight' rating and reducing their price target from $4.50 to $4.20. They cut their EBITDA and earnings per share estimates by 1% to 2%, but held their dividend forecasts.
UBS analysts left their 'buy' rating and $4.40 price target unchanged, but cut their earnings per share forecasts by 2% for FY24 and 5% in FY25, primarily reflecting the $200 million to $250 million restructure costs associated with the workforce reduction.
Morgans analysts were more downbeat on the announcement, however, calling the stock "relatively unattractive" with "greater downside than upside risk". They reduced their earnings per share forecasts by 5% to 11%, lowered their target price from $4 to $3, and downgraded their recommendation from 'hold' to 'reduce'.
Macquarie analysts also downgraded their rating on Telstra to 'neutral'. They cut their price target from $4.38 to $3.70 and reduced earnings per share estimates by 7%, 9% and 10% for FY25, FY26 and FY27 respectively.
The context: Jarden analysts said that the job reductions were larger than expected, but that Telstra's parallel announcement that it will remove the annual inflation-linked review of prices on postpaid mobile plans was "a complete surprise".
UBS analysts also noted that the workforce cuts were "largely expected". Unlike Jarden analysts, they said they maintained "positive optimism" around Telstra's ability to lift mobile prices despite removing CPI indexation in postpaid contracts.
However, Morgans analysts said the removal of the CPI price rise makes them "seriously reassess" their previous view that Telstra would remain in a period of pricing rationality for a few more years, and they now expect competition to re-intensify.
Macquarie analysts also cited Telstra's removal of its CPI-based price increases as "the key negative" from the announcement. While the telco indicated that the move provides it with greater flexibility to respond to market conditions, the analysts said it is "negative for the industry when the market leader is no longer leading the upward price trajectory".
The sources: Jarden research, Morgan Stanley research, UBS research, Morgans research, Macquarie research
