BT Group (LSE:BT.A) stock’s up a whopping 57% over the past year. This vastly beats the FTSE 100 performance over the same period, and has elevated the stock to the highest level in over five years. Yet from here, analysts have a much more mixed view when it comes to the direction of travel for the BT share price.
Looking to the experts
Of the 21 banks and brokers that currently have a view on the stock, the highest share price target for the coming year is 312p. This comes from Andrew Beale at Arete Research and, for reference, the current stock price is 213p. This indicates a potential 64% return if his forecast turns out to be correct.
At the other end of the scale, analyst Robert Grindle at Deutsche Bank expects the stock to fall to 140p this time next year, a drop of almost 32%.
When I take a look at the overall view from all contributors, there’s an interesting conversation. The average target price for the coming year is 212p, only a penny lower than the stock trades at right now!
As a note, analyst views should be taken with a pinch of salt. No one can perfectly predict the stock market. Even though these are smart people who have conducted a lot of research, it doesn’t mean their forecasts are correct. The wide range of views for BT shares is a clear example of this.
Higher or lower?
Let’s consider both sides of the coin. BT stock could rally in the coming year as management’s transformation plan begins to bear fruit. The company has been cutting costs aggressively, including through a major reduction in its workforce. At the same time, it’s made good progress with accelerating its fibre-to-the-premises rollout and 5G expansion.
These strategic investments should gradually improve profit margins. The better end service should reduce customer churn. Ultimately, it could position BT competitively in a market increasingly dependent on high-speed connectivity. If this proves to be the case, and quarterly results over the coming year indicate this, then I’d expect the stock to react positively.
On the other hand, the stock could just as easily come under pressure. The telecoms industry remains heavily competitive, with price wars in broadband and mobile squeezing margins. BT isn’t immune to this impact.
Further, UK inflation’s on the rise again. If this continues, related cost pressures could offset efficiency savings. BT’s also carrying a large debt load and a significant pension deficit, which may limit financial flexibility and leave the company exposed if cash flows disappoint. Let’s also not forget that if inflation remains high and interest rates have to stay higher for longer, refinancing the large debt pile could be expensive.
On balance, I disagree with the notion that the stock’s due for a large fall. At the same time, I see only modest share price gains from here, so I suggest investors consider looking elsewhere for more attractive stock options to buy.
