Comeback kid? The BT share price rebounds 62%. Can it continue?

The BT (LSE: BT.A) share price has been one of the strongest performers in the FTSE 100 this year. Year-to-date, shares in the telecommunications giant have returned around 15%. Over the past year, the company’s performance has been even more impressive.

Over the past 12 months, the stock has returned 62%, rallying after its pandemic-induced slump. Indeed, the shares have nearly doubled from the multi-year low of 98p printed in July 2021. Based on this performance, I think it is fair to say that the company has earned the title of the FTSE 100’s comeback kid

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It looks to me as if this performance can continue. As the business continues to rebuild investor and customer confidence in its operation, I believe the stock can push back to the levels last seen at the beginning of 2019. 

BT share price outlook 

Over the past two years, the company has accelerated its capital spending plans to meet the demands of regulators and consumers. 

The group is now spending billions every year on its fibre broadband rollout and recently unveiled plans to hire an additional 4,000 engineers for its Openreach division

I think this is a very sensible decision. BT has long neglected its capital spending obligations. This has had an impact on customer service and customer offering. Now that it is investing, customers are starting to return. 

Based on the firm’s recent progress, City analysts believe it will earn £1.8bn in the 2022 fiscal year, up from £1.5bn in fiscal 2021. If BT can hit this target, analysts are projecting further growth in fiscal 2023. The City is expecting a net income of £2bn from the company for the year. 

Of course, there is no guarantee the firm will hit this target. Nevertheless, if it does, it will be the first time earnings have grown since 2016. 

This could mark a dramatic turnaround for the enterprise and help crystalise better sentiment towards the BT share price. Indeed, based on these projections, the stock is selling at a forward price-to-earnings (P/E) multiple of just 9.6.

Fighting for growth

There are plenty of challenges the firm will have to overcome to maintain this growth. Rising cost pressures may hit margins (although BT is hiking prices by as much as 10% to offset higher costs).

The company also has to spend more on marketing to bring customers back following years of underinvestment. Further, competition is growing, forcing the group to up its game to keep peers at bay.  

Despite these headwinds, I am optimistic about the outlook for the BT share price. If the firm can maintain its current trajectory, I see no reason why the stock cannot achieve the same earnings multiple as it did in 2016, the last time earnings were expanding.

Back in 2016, the stock was trading at a forward P/E multiple of 13. Based on current City earnings projections, this suggests the stock could be worth as much as 270p. 

Considering this valuation, I would be happy to add the stock to my portfolio today. 

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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.

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