On Tuesday, Barclays (LON:BARC) updated its outlook for Deutsche Telekom (ETR:DTEGn) (DTE:GR) (OTC: OTC:DTEGY), raising the price target on the company's shares to EUR30.50 from the previous EUR29.50. The firm maintained an Overweight rating on the stock.
The adjustment follows a review of the telecom giant's financial prospects outside Germany. Barclays anticipates continued growth in adjusted EBITDA within Germany, though it notes potential fluctuations within quarters due to the timing of wage increases.
The revised estimates also take into account Deutsche Telekom's recent move to exercise its call option for T-Mobile US (NASDAQ:TMUS), which is expected to increase its ownership stake to approximately 51%.
The firm's analysts have updated their forecasts to reflect a slight increase of around 1% for group revenue, adjusted EBITDA after leases (aL), and free cash flow (FCF) for the years 2024 to 2027. This update also includes adjustments for foreign exchange rates.
Barclays' updated valuation implies a 35% upside potential for Deutsche Telekom's shares. Based on the firm's projections, Deutsche Telekom is trading at an enterprise value to adjusted EBITDA ratio of 7.8 times, an enterprise value to operating free cash flow of 12.3 times, and an equity free cash flow yield of 7.3%. These metrics are broadly consistent with the company's peers, despite Deutsche Telekom's prospects for higher growth beyond the estimated period of 2024.
In comparison to market performance, Deutsche Telekom's shares have yielded total returns that are closely aligned with its peers, showing a 7.7% increase year to date. This is just slightly behind the 8.3% for the Stoxx Europe 600 Telecommunications Index (SXKP).
Meanwhile, T-Mobile US has seen a 13% rise in its share value in USD, which translates to a 16% increase when converted to EUR. This suggests that Deutsche Telekom's stock has not fully reflected the positive performance of its T-Mobile US counterpart.
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