At the beginning of 2020, the BT (LSE: BT.A) share price plunged in line with the rest of the market. The stock dropped 50% to below 100p as investors re-evaluated the group’s prospects.
Since then, the stock has recovered. Last June, it returned to its pre-pandemic level of 200p on takeover speculation, although it could not hold this level for long. The shares soon dropped back below 140p.
Since then, investors have been steadily returning to the group. Indeed, the stock is up around a third since the last week of October. And I think there could be further gains to come. In fact, I reckon it is likely the BT share price will hit 200p again in the next few months.
Multiple catalysts
I believe multiple catalysts could push the BT stock higher this year. Leaving aside the takeover rumours, there are plenty of reasons to be optimistic about its outlook. The company’s decision to focus on enhancing customer service and invest in its infrastructure is starting to pay off. Initial indications show that consumers are returning to the group, and their opinion of the corporation is improving.
The results of this strategy are not expected to filter through to the firm’s bottom line until the financial year ending March 31, 2023. While we will not get the whole picture until next year, the company’s interim results for the 2023 fiscal year should be published towards the end of 2022.
If these results show that the company is on track to return to growth for fiscal 2023, the market’s view of the business could quickly change. If BT can return to growth, it will be the first time since 2016 it has reported earnings expansion.
Another reason I am optimistic about the outlook for the stock is the potential for dividends. Alongside its financial results for the fiscal year ending March 31 2022, City analysts are expecting the firm to announce a substantial dividend for the period. They have pencilled in a dividend for the fiscal year as a whole of 7.5p, giving a yield of 4.4% on the current share price. If the company does meet these projections, income investors could return.
Analysts are also forecasting earnings per share (EPS) of 20.4p for fiscal 2023. Historically, the stock has traded at a price-to-earnings (P/E) multiple of around 10. If it returns to this level, EPS of 20.4p imply the shares could be worth 204p.
BT share price outlook
These are all reasons why I think the BT share price can return to 200p this year. However, I also need to consider the challenges the company may encounter as well.
Rising interest rates will increase the cost of the group’s debt, which is substantial. Higher interest rates could potentially hold back the firm’s return to growth if it has to set aside more money to cover costs. Competition in the telecommunications sector is also increasing, and BT must work harder to maintain its market share.
Despite these risks and challenges, I would be happy to buy the stock for my portfolio today, considering its outlook. As BT returns to growth, I think the market will take a more favourable view of the business.
