Morgan Stanley maintains BT stock overweight with GBP2.40 target

On Friday, Morgan Stanley (NYSE:MS) analysts maintained a positive outlook on BT Group Plc (LON:BT/A:LN) (NYSE: BT), reiterating an Overweight rating and a price target of GBP2.40. Currently trading at $1.70 with a P/E ratio of 7.05, InvestingPro analysis suggests the stock is fairly valued. Despite anticipating a lackluster financial performance for the current year, with projected revenues down by 2%, EBITDA remaining flat, and free cash flow (FCF) decreasing by 6%, the analysts see a more promising future for the company in FY27e. They predict revenues will stabilize, EBITDA will increase by 1%, and FCF will surge by 33%.

Following the FY25 results released in May, Morgan Stanley believes that BT Group’s FCF visibility has improved. With an InvestingPro Financial Health Score of 2.88 (rated as GOOD), and impressive revenue growth of 12.4% over the last twelve months, the company shows strong fundamentals. While near-term capital expenditures are expected to exceed predictions by approximately £100 million, the firm is on track to extend fibre connectivity to over 23 million homes by March next year. This coverage represents nearly 80% of all UK homes, which suggests that capital expenditures will eventually decrease.

The analysts also highlighted potential catalysts that could contribute to a revaluation of BT Group’s shares. They pointed to the possibility of market repair benefiting both Openreach and BT’s Consumer division. The analysts referred to a previous report from January 23, 2025, which suggested that the competition among fibre network providers is likely to shift from aggressive expansion to consolidation. This shift is expected due to the challenging macroeconomic environment, which makes funding more difficult, and the lackluster business performance of alternative network providers, who have only achieved a 10-20% uptake rate compared to Openreach’s 36%.

In the consumer sector, the analysts anticipate that the upcoming completion of a UK mobile merger could lead to more rational market behavior, with a focus on network investments. This is an area where BT Group, through its subsidiary EE, holds a competitive advantage. The company offers an attractive dividend yield of 6.92%, demonstrating its commitment to shareholder returns. With its next earnings report due in just 3 days, InvestingPro subscribers can access detailed analysis and additional insights about BT Group’s market position and growth prospects. The analysts’ commentary underscores the potential for BT Group to benefit from changes in the market landscape and the strategic positioning of its network infrastructure.

In other recent news, Deutsche Bank (ETR:DBKGn) has downgraded BT Group’s stock rating from Hold to Sell, setting a new price target of GBP1.40. This development comes despite BT Group’s stock showing a 19% increase year-to-date, outperforming the SXKP index’s 14% rise. Deutsche Bank analysts noted BT Group’s resilience amidst trade war uncertainties and a sluggish economy, despite line losses in its infrastructure arm, Openreach. The stock has been positively influenced by buying activity from Bharti Televentures, although weaker key performance indicators and previous broker downgrades have posed challenges. Analysts expressed concerns about limited market recovery potential, citing intensifying competition and the impact of UK government bond yields. Additionally, the cessation of trade buying is expected to weigh on the stock. The analysts highlighted that the current share price is 20% above their target, prompting the downgrade. These recent developments reflect Deutsche Bank’s cautious outlook on BT Group’s future performance.

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