Deutsche Telekom Stock Is Finding Gains Long Distance. Expect More.
After a rough year for U.S. stocks in 2022, investors may be wondering if there are better returns to be had overseas.
Germany—the world’s third-biggest economy, known as the powerhouse of Europe—might be one place to look. The country’s DAX index of blue-chip stocks lost 12% last year. Not great, but still better than the S&P 500 index’s nearly 20% decline.
Deutsche Telekom , Germany’s flagship telecommunications company, splits the difference between betting on the U.S. economy and exposure to overseas stock markets. It’s a big German company that makes most of its revenue in the U.S. through T-Mobile , the mobile-phone operator of which it owns just under half. T-Mobile was a Barron’s stock pick in August. Deutsche Telekom has a presence in more than 50 countries, and its shares have gained almost 30% in the past year.
T-Mobile’s U.S.-traded shares (ticker: TMUS) are up more than 40% from a year ago, leaving some room for the German-traded Deutsche Telekom shares (DTE.Germany) to catch up.
Currency moves may also help this year. The dollar’s spectacular appreciation last year hurt organic growth, the company said in November. But the trend may reverse this year, as currency forecasters see the euro appreciating in 2023. That may also flatter returns of German shares in dollar terms.
If economic clouds are gathering, Deutsche Telekom might be considered a relatively safe play. If German or U.S. households and businesses get squeezed in a recession this year, phone lines might be one of the last things they cut back on.
The company itself is bullish. It raised earnings guidance three times last year. In November, it said it plans to lift its dividend to 0.70 euros (0.76 U.S. cents) a share for 2022 from €0.64 in 2021. “We are once again proving to be an anchor of stability in difficult times,” said Tim Hoettges, chairman of the Board of Management, at the time. “Our businesses continue to grow.”
Deutsche Telekom emerged from the privatization of the German postal service in 1995. It was the monopoly internet service provider until then, and remains the biggest ISP in Germany. Through a series of mergers and acquisitions, it expanded throughout Europe. The company got a foothold in the U.S. in 2001 by buying VoiceStream Wireless. It got bigger over the years, helped by a series of mergers, and is now the second-biggest mobile provider in the country.
Deutsche Telekom also holds a roughly 12% stake in BT Group (BT.A.UK) in the United Kingdom. The T-Mobile brand is no longer used in Britain after being folded into EE, another mobile provider now run by BT.
The German state still directly owns about 14% of Deutsche Telekom, while the state-backed development bank KfW holds 17%. Retail investors constitute 18%, with institutional investors owning 47% and the Japanese conglomerate SoftBank holding 4.5%.
Deutsche Telekom has a market value of €100 billion, fetches 12.5 times this year’s expected earnings and is valued in line with its peers. It offers a dividend yield of 3.4%. Shares currently trade at about €20.67. Robert Grindle at Deutsche Bank says the shares could rise to €29.50 and rates them a Buy. Of the ratings collected by FactSet, 12 analysts have Buy ratings while two are at Hold. None give it a Sell. Deutsche Telekom presents 2022 annual results on Feb. 23.
The company “remains one of our top sector picks, given its strong earnings momentum on both sides of the Atlantic,” wrote Credit Suisse analysts after the latest guidance change in November. “Its economic resilience and inflation resilience currently are attractive.”