Deutsche Telekom Earnings: Strong 2024 Guidance Suggests Higher Free Cash Flow Generation

Narrow-moat Deutsche Telekom's results were satisfactory as expected. Management met all its guidance targets, gave a healthy outlook for 2024, and raised its dividend by 10% to EUR 0.77 per share, which had been announced in third-quarter 2023. For 2024, Deutsche Telekom expects adjusted EBITDA after leases to grow 6% to EUR 42.9 billion, compared with EUR 40.5 billion in 2023, and free cash flow to be up to EUR 19 billion from EUR 16 billion in 2023 as capital spending in the United States keeps declining. Execution in the U.S. and Germany remains strong. T-Mobile U.S. grew EBITDAaL by 3% due to higher service revenue and cost-controls. In Germany, Deutsche Telekom continues gaining market share from Vodafone in mobile and broadband, with EBITDAaL up 4.1% year over year. We maintain our EUR 25 fair value estimate for Deutsche Telekom. Despite Deutsche Telekom shares providing less upside than other European telecom companies under our coverage, it remains one of our preferred stocks. We like Deutsche Telekom’s strong competitive position in its core markets, reasonable dividend yield (3.5% as of Feb. 23), and its Exemplary Morningstar Capital Allocation Rating.