BT (LSE: BT.A) shares have performed well in 2023, rising 10% throughout the year. However, the stock is still well off its pre-Covid highs of well over 400p. In fact, over a five-year span the stock is down 50%.
What’s more, one of the biggest banks on the street upgraded its target price for BT to 290p. So, could 2024 be the year the telecoms giant surges past 300p? Here’s my take.
Reasons to be excited
One of the biggest draws of BT shares lies in their valuation. Currently, they trade on a price-to-earnings (P/E) ratio of 6.5, which is significantly lower than the FTSE 100 average of approximately 14. This appears to be a good deal, particularly considering that generally, most promising stocks are valued at P/E ratios below 10.
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However, when comparing this metric to Vodafone and Deutsche Telekom, who have P/E ratios of 2.1 and 5.4 respectively, the value of BT shares isn’t as straightforward.
Nevertheless, the stock does present an impressive dividend yield of 6.8%. This substantial yield could serve as a valuable addition to my portfolio, potentially allowing for passive income generation and the opportunity to reinvest the earnings back into the stock to amplify overall gains.
In addition, analysts at JP Morgan ramped up their target price 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 shares. However, it always fills me with confidence when institutional players back stocks.
BT has also made some exciting customer announcements in the last few months. In October, it announced that customers would be gaining access to EE broadband deals. EE is a top-ranked broadband provider in the UK, and I expect the merging of products to benefit customers.
BT has also taken significant steps to expand its 5G network across the country. Now encompassing over 1,000 towns across the UK, BT is the leader in the new technology.
Not all plain sailing
BT’s balance sheet remains a persistent worry for me. The company is currently operating with almost £20bn debt, and I find this factor hard to overlook. This worry is amplified when I consider BT’s current market cap is just over half that figure, currently £12.5bn.
Interest rates remain persistently high, currently sitting 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 Q3 2024. Higher rates lead to increased interest payments on debt. In BT’s case, these payments will be in the tens of millions range. This could continue to constrain the stock, potentially muting any share price gains.
Can the stock pop?
So, will shares reach 300p in 2024? Unfortunately, I don’t have a crystal ball – if I did, I would have beaten the stock market long ago! From an outside perspective, I think there is lots to be excited about. The stock also looks cheap and has good institutional backing.
However, I don’t think these positives contribute to a share price doubling. I think debt problems could also continue to constrain the stock. For this reason, I won’t be buying the shares today.
