European telecommunications companies have been the ugly duckling of the stock market in recent years. The atomization of the sector, strong competition and very severe legislation have reduced the profitability of these securities, which in 2025 show a modest balance at an overall level and very uneven at a company level, with evolutions marked in many cases by the possibility of carrying out corporate transactions. The European telecommunications sector index thus accumulates an increase of 8% over the year, below the 10% of the Stoxx 600 and very far from the increase of close to 50% in the banking sector, the undisputed leader. But this year we should also highlight the 96% increases of Telecom Italia, followed by Orange with 43% and the gains of over 30% of the Swedish Tele2 and Vodafone. At the bottom are Spanish companies Telefónica and Cellnex, with annual declines of 8% and 17% respectively, and Deutsche Telekom, which lost almost 5% of its value over the year.
A recent report by the consultancy firm Oliver Wyman highlights the shortcomings of the European telecommunications sector compared to the American or Chinese ones. “On average, a European operator serves 5 million subscribers, compared to 107 million in the United States and 467 million in China. This fragmentation limits the ability to invest in essential digital infrastructure and services,” the study says. He adds: “Consolidation, especially through cross-border operations, will allow European telecoms to strengthen their competitive position beyond national markets.” These experts are confident in greater flexibility in the regulatory framework that has bound the sector, along the lines of what was hoped for by the reports by Mario Draghi and Enrico Letta to improve the competitiveness of the EU.
Bankinter analysts point out that the main weaknesses of European telecom companies are the high level of debt, low pricing capacity in countries with strong competition and cash generation that is very sensitive to changes in income and capital intensity. Naturally they see “an improvement in the competitive context with lower investments and greater permissiveness towards the consolidation of the sector by the European authorities”. The expectation of mergers, as a great strategy for the return of investor interest in the sector, marks the evolution of the sector on the stock market this year. And in this sense, the Spanish Telefónica seems, with a few votes, to be conducting an operation that could raise its price.
Without a doubt, Telefónica’s strategic plan disappointed investors not only with the planned dividend cut, but also with the lack of visibility for the future, as it contained no allusion to possible acquisitions. A wave of ratings cuts by analysts followed the telecom company’s presentation, which analysts say distances the operator from corporate moves.
Ivan San Félix Carbajo, analyst at Renta 4, underlines that Telefónica’s new situation “makes it difficult, at least for the moment, to have the positive component of a possible consolidation operation”. Swiss bank UBS slashed Telefónica’s valuation from 4.8 euros to 3.9 euros per share, citing the “lack of organic catalysts in any direction.” His report lacks the expected references to mergers and acquisitions. Barclays recognizes some upside potential if the company can complete consolidation deals within the market. “With the new data we do not see an attractive valuation compared to its competitors, despite the recent decline in the share price,” adds the British bank, which maintains its sell recommendation after cutting the target price from 4.9 to 4 euros per share.
Telefónica halved next year’s dividend to 0.15 euros to reduce debt and an ERE that could hit 7,000 employees, in addition to its divestments in Latin America. But the market’s verdict is final: on the day the strategic plan was announced, the stock suffered a historic loss of 13% and has since then collapsed by more than 8%. Bankinter analysts explain that “to achieve its possible objectives, Telefónica must strengthen its balance sheet, communicates free cash flow for investments and maintain financial discipline to avoid a downgrade of one’s credit rating.”
Ivan Sán Félix predicts low growth for the Spanish operator in a very competitive market with narrow margins forcing staff reductions. And corporate operations have clear limitations in Spain, with few options for acquiring Vodafone’s Spanish operations and perhaps more possibilities for a deal with Digi, according to San Félix. A possible purchase would in any case require a capital increase on which not even Telefónica has provided any indication.
At the center of mergers
Now, corporate operations are already starting to make noise in Europe. A consortium formed by Orange, Bouygues and Iliad submitted a bid a few weeks ago to acquire most of Altice’s telecommunications assets in France (SFR) to consolidate the French consumer mobile market by reducing the number of operators from four to three. Although the offer was rejected, Goldman Sachs believes that “this initiative will have positive implications for potential beneficiaries of consolidation in other markets, such as Germany, Italy, Sweden and Spain, including Tele2, Telia, DT and United Internet.” And he adds: “We believe that mobile consolidation could help reevaluate the sector in general; in our opinion, the companies that would benefit least from it would be those that are already exposed to the markets with three operators, such as Elisa, KPN, Proximus, Swisscom and Sunrise.” And there is no shortage of pools for merger operations every day. Orange has already announced that it will not give up Altice, in an operation that could be an example for operators such as Telefónica.
Despite Telecom Italia’s excellent performance over the year, Barclays analysts believe that its valuation remains more attractive than that of its competitors. “TIM has one of the lowest levels of leverage among its competitors and is exposed to numerous potentially positive options,” they indicate. For its part, Deutsche Bank upgraded the Italian company from hold to buy and raised its price target from 0.34 euros to 0.62 euros, citing its potential for cash flow recovery and sector consolidation.
Another opportunity is offered by Deutsche Telekom, despite the negative year. Paul Sidney, an analyst at Berenberg, recommends buying the telecommunications company and highlights its positive performance in Germany and the increase in its presence in T-Mobile US. JP Morgan Research also considers the stock interesting and recommends purchasing it. This analysis is based on the company’s financial strength and growth strategy.
Deutsche Telekom raised its annual targets slightly again after a strong third quarter, promised a record dividend (1 euro versus 0.90 euros currently) and announced a 2 billion euro share buyback program. Bankinter points out that Deutsche Telekom owns a 50% stake in the world’s most attractive telecom asset: T-Mobile US, which is growing in the United States thanks to a more advanced 5G network. “In Germany, Deutsche Telekom’s positioning is favorable with a rather low competitive intensity,” they explain.
However, less consensus can be found in the analysts’ opinion on the French company Orange, according to which its presence in Spain weighs on the group due to the strong competition to which it is subject. Goldman Sachs maintains a neutral value recommendation with a one-year price target of 15.4 euros (now at 13.7 euros), although it expects an improvement in the competitive environment in France and Spain and favorable regulatory changes for the company. The Alpha Value company confirms its recommendation to buy Orange shares, maintaining the indicative price at 15.4 euros. It highlights an organic cash flow from telecommunications activities of at least €3.6 billion and reiterates a minimum dividend of €0.75, which represents an indicative profitability of 5.3%.
Debt, the sustainability of the dividend, the exit from unprofitable markets such as Spain and the decline in the German market due to strong competition complicate the analysts’ view on Vodafone, despite the good performance of the year. UBS gives it a price target of 80p (trading at 90s lows) and believes the recent bull rally has been overdone and sees no potential based on alternative metrics such as dividend yield spreads and valuation multiples. JP Morgan maintains its negative rating on the stock, with a sell recommendation. The main reason is concerns about structural financing gaps and macroeconomic pressures, which will negatively affect the company’s prospects. Deutsche Bank has a very different opinion and sees upside potential to 140p.
The telecommunications infrastructure company Cellnex has received a strong penalty on the stock market this year, close to 20%, and is traded at 25 euros per share. Bankinter analysts are very positive on the value with a target price of 41.8 euros. “We estimate EBITDA growth of 4% per year and cash flows of 8% per year between 2024 and 2029. Demand for telecom towers will continue to grow because they are a key part of 5G development and artificial intelligence brings a greater need for data,” they indicate. Barclays is also betting on Cellnex given its shareholder remuneration policy. It has a remuneration program of 1,000 million euros, divided equally into dividends and share buybacks.
