The BT (LSE: BT.A) share price has plunged over the past few weeks. I think this is a fantastic opportunity for long-term investors like myself to snap up some shares in the telecommunications giant at a discount price.
Improving potential
As the largest telecommunications company in the UK, BT has certain defensive qualities about it. While some consumers might decide to cut back on spending in an uncertain economic environment and reduce expenditures on premium packages provided by the group, they are unlikely to cut back on the basic services.
This suggests the company will continue to have a steady stream of income from customers buying its broadband and phone deals.
BT has been investing heavily in its offer over the past couple of years. This investment has had a significant impact on the company’s bottom line. It is spending billions on building out its fibre broadband network, and this money is not going to shareholders.
Some investors might be disappointed by the company’s decision to spend so much on building out its network, but I believe it is the right decision.
The UK telecoms market is incredibly competitive, and BT needs to keep spending to stay ahead of the competition.
Investments pay off
These initiatives are already starting to yield results. City analysts have pencilled in earnings growth of around 6% for the 2023 financial year, the first time the company will report growth since 2016.
That is assuming the corporation hits these projections. There is no guarantee that it will. Rising costs and the competitive environment are all challenges the management will have to overcome in the next few quarters.
Still, if the company does meet these forecasts, the BT share price looks inexpensive at current levels. It is currently selling at a forward price-to-earnings (P/E) multiple of 8.6. That is below its five-year average, which is around 10.
After cutting its dividend in 2020, the company is also expected to hike its distribution in the next two financial years. Based on current projections, the stock is expected to support a dividend yield of 4.3% for the 2022 financial year and 4.3% for 2023.
BT share price outlook
Considering all of the above, I would be more than happy to add BT to my portfolio today. As the economic and geopolitical outlook becomes more and more uncertain, companies with defensive qualities like BT could come back in favour with investors.
There is no guarantee the market will re-rate the stock to a higher multiple. Nevertheless, it could act as a safe haven for investors in stormy waters in an uncertain environment.
The company will almost certainly face some challenges as we advance, but it is trying to meet these challenges head-on with increased spending. So far, the results are positive. I am excited to see what the future holds for the enterprise.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
