UBS says Deutsche Telekom selloff overdone, merger fears overblown

Analyst

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Summary · why it matters

UBS believes the recent 5.5% drop in Deutsche Telekom shares is overdone, arguing that concerns about a potential merger with T-Mobile US and rising U.S. wireless competition have overshadowed solid operating performance. The brokerage questioned the need for a full merger, noting Deutsche Telekom already owns 54% of T-Mobile US and retains operational control, while any move to increase ownership could face regulatory scrutiny given the German government's 28.6% stake and foreign investment rules. U.S. shareholders largely favor T-Mobile US as a standalone business, and Deutsche Telekom investors worry about paying a premium for the remaining minority stake. Reports that Charter Communications is exploring a satellite-backed mobile service are seen as a limited near-term competitive threat, as satellite connectivity is more likely to complement existing networks. UBS maintained its Buy rating and €36.60 price target, citing attractive valuation, double-digit earnings growth, a dividend yield of about 4.4%, and continued share buybacks.