Deutsche Telekom shares down as its arm T-Mobile guides lower

Investing.com -- Shares of Deutsche Telekom (ETR:DTEGn ) fell on Thursday after its U.S. unit, T-Mobile US (NASDAQ:TMUS ), adjusted its financial guidance.

At 6:52 am (1052 GMT), Deutsche Telekom (OTC:DTEGY ) was trading 2.5% lower at €25.797.

Following T-Mobile's 2024 Investor Day, the company's conservative outlook for 2025 led to a fall in TMUS shares, which in turn caused Deutsche Telekom's share price to drop.

T-Mobile’s new guidance indicated a projected service revenue growth of around 5% annually from 2023 to 2027, with 6% postpaid growth. 

However, 2025 growth is expected to slow to 4%, due to headwinds in wholesale markets and the Affordable Connectivity Program (ACP). Investors were concerned that these projections might not fully reflect the company's long-term potential​.

Free Cash Flow (FCF) expectations were another point of concern. T-Mobile's forecast of $18 to $19 billion in FCF by 2027 fell 2% below consensus. 

Rising cash taxes, a result of T-Mobile becoming a full taxpayer by 2027, contributed to the weaker FCF outlook. T-Mobile's strong history of benefiting from tax loss carryforwards and other tax relief mechanisms over the past 20 years will likely come to an end​.

Morgan Stanley acknowledged that T-Mobile’s long-term strategy, particularly its 35% dividend increase and plans for $50 billion in capital returns over the next three years, provided some positive signals. 

However, the lower-than-expected guidance for 2025 and the $20 billion in unallocated capital created uncertainty regarding future growth initiatives and shareholder returns​.

While the recent guidance revision has caused short-term fluctuations in Deutsche Telekom's stock, analysts at Morgan Stanley remain optimistic about the company's long-term prospects. 

The emphasis on growth in rural markets, fiber broadband, and 5G expansion continues to position T-Mobile as a leader in the industry. Deutsche Telekom remains rated "overweight" by Morgan Stanley, with a target price of €31.

Source: Investing.com