Telstra (ASX: TLS) is six months into its five-year Connected Future 30 strategic journey, with the aim of delivering a mid-single-digit compound annual growth rate in cash earnings from fiscal 2025 to fiscal 2030. We assess the predictability of those earnings and implications for our intrinsic assessment.

Why it matters: The InfraCo-Fixed unit generates 20% of Telstra’s earnings and Amplitel 5%. These are unequivocally steady cash flows, underpinned by ongoing demand for Telstra’s communications infrastructure and mobile towers, as well as long-term contractual income from NBN.

  • As such, InfraCo-Fixed and Amplitel warrant a lower-than-market average cost of equity, which Morningstar sets at 9%. Mobile earnings (60% of the group total) may also arguably have lower systematic risk than the overall market, given the growing necessity of wireless connectivity.
  • The predictability of Telstra’s earnings is further supported by the Connected Future 30 strategy. It is one we hope involves “shrinking to greatness,” by focusing on the core (connectivity) and shedding the superfluous (costs, delusional enterprise products, indulgent growth projects).

The bottom line: We lift our fair value estimate for narrow-moat Telstra by 8% to $5.40. While our earnings forecasts are unchanged, the higher intrinsic assessment reflects our lower WACC estimate of 6.5%, from 6.8%, to account for Telstra’s greater earnings resilience relative to the market.

  • We also adjust our Morningstar Uncertainty Rating to Low, from Medium. The predictability of Telstra’s earnings and cash flows is reinforced by its balance sheet. Net debt/EBITDA is now just 1.9 versus management’s 1.75-2.25 comfort zone, and Telstra is currently executing a second buyback.
  • With these upgrades, shares are about 10% below our revised fair value. Amid insatiable demand for tech-driven growth, Telstra’s defensiveness may look “boring.” But there is value in looking boring, especially given its connectivity role in a digital world.

Recognizing Telstra’s defensiveness

Telstra’s performance during and since the depths of covid-19 shows the resilience of its earnings and the strength of its balance sheet, especially given the negative impact on high-margin roaming revenue was material during the pandemic. The $2.7 billion cost-out program under T22 was delivered, and an additional $428 million of costs was eliminated under the T25 plan.

In May 2025, Telstra unveiled a new five-year strategic plan. It is targeting mid-single-digit compound annual growth in cash earnings to fiscal 2030, while aiming to generate “a sustainable and growing dividend.”

Telstra is the biggest telecommunications services provider in Australia. It has dominant market share in each service category and customer segment, and enjoys cost advantages that underpin its narrow moat rating. While competition is robust, Telstra’s mobile market shares are likely to prove resilient.

Telstra’s infrastructure provides the most comprehensive coverage for fixed-line, mobile, and broadband in Australia, which drives reliable cash flow. Telstra is not the cheapest provider of telecommunications services, but it is the lowest-cost provider, resulting in EBITDA margins of over 30%.

The NBN has reshaped Telstra, and a slimmed-down operational base is now focused on mobiles and efficiency improvements. Competitive advantage in coverage and speed of the Telstra mobile network attracts customers demanding reliable mobile connectivity. The network has the capacity to handle escalating demand for data. NAS delivers value-added services on Telstra’s high-speed networks, including cloud computing, high-definition video conferencing, and managed data networks for private and public sector entities.

Offsetting its success in mobile, fixed-voice products are experiencing both structural decline and increased competition. In line with global trends, revenue from traditional voice services provided by the public switched telephone network, or copper network, is in decline. This is the reason why Telstra’s continuing commitment to cost reductions and efficiency gains is important.

Bulls say

  • Telstra has market-leading shares across all vital telecommunications segments and is likely to maintain these positions in the future.
  • While the telecommunications space is incredibly competitive, Telstra has a significant competitive advantage via its extensive mobile and wireless networks.
  • Decommissioning of the copper network lowers capital intensiveness of the business. Telstra can redirect capital to the higher-growth mobile segment.

Bears say

  • Regulatory risks are real. Wholesale NBN prices are high and could increase further, while government scrutiny on Telstra’s market power is ever-present, especially in regional and rural areas.
  • Competitive intensity is high, especially in mobile.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.