On Thursday, Citi analyst increased the price target for Deutsche Telekom (DTE:GR) (OTC: OTC:DTEGY) to €33.00, up from €28.30, while keeping a Buy rating on the stock. The adjustment follows Deutsche Telekom's Capital Markets Day (CMD), where the company outlined its financial targets and strategies.
Deutsche Telekom anticipates continued revenue growth coupled with strict cost discipline to significantly boost free cash flow (FCF) to approximately €21 billion by the year 2027. The company expects free cash flow excluding T-Mobile US (NASDAQ:TMUS) to rise by €2-400 million.
Furthermore, Deutsche Telekom aims to maintain its leverage ratio around 2.75 times over the next three years and plans to use its additional financial capacity, estimated at around €17 billion, for regular share buybacks and potentially increasing its stake in TMUS.
In addition to these financial maneuvers, Deutsche Telekom intends to uphold a regular dividend, targeting a 40-60% payout of its earnings per share, which is expected to reach around €2.5 per share by 2027. The analyst noted that this dividend policy could be seen as conservative given the potential additional value from TMUS's $30 billion investment opportunities.
Citi's updated forecast reflects Deutsche Telekom's mid-term targets and anticipates a compound annual growth rate (CAGR) of less than 15% in dividends per share, with an annual buyback program worth €2 billion, translating to a roughly 5% yield. The analyst concluded that the CMD affirmed the attractive prospects for Deutsche Telekom, prompting the firm to maintain a Buy rating and raise the price target to €33.00.
InvestingPro Insights
Deutsche Telekom's strong financial outlook, as discussed in the article, is further supported by recent data from InvestingPro. The company's market capitalization stands at an impressive 150.71 billion USD, reflecting its significant presence in the telecommunications sector. This aligns with the InvestingPro Tip highlighting Deutsche Telekom as a "prominent player in the Diversified Telecommunication Services industry."
The company's financial health is evident in its revenue of 124.22 billion USD for the last twelve months as of Q2 2024, with a solid gross profit margin of 44.49%. These figures underscore Deutsche Telekom's ability to generate substantial cash flow, which supports the company's ambitious free cash flow targets mentioned in the article.
InvestingPro Tips also reveal that Deutsche Telekom has raised its dividend for 3 consecutive years and has maintained dividend payments for 20 consecutive years. This track record aligns with the company's commitment to a regular dividend policy outlined in the article, targeting a 40-60% payout of earnings per share.
The stock's recent performance has been noteworthy, with a 35.01% price total return over the past six months and a 43.45% return over the past year. This strong performance is reflected in the stock trading near its 52-week high, with the current price at 99.62% of its 52-week high.
For investors seeking more comprehensive insights, InvestingPro offers 13 additional tips for Deutsche Telekom, providing a deeper understanding of the company's financial position and market performance.
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