J.P.Morgan Upgrades European Telecom Outlook as Consolidation Wave Looms

Investing.com -- J.P.Morgan sees 2026 as a “year of sector consolidation” for European telecoms, with rising merger and acquisition activity driving potential stock gains despite weak revenue growth.

European telecom revenues fell 0.7% in Q3 2025, but analysts expect bottom-line expansion from cost cuts and lower capital intensity.

17 companies have rallied 30%-200% year-to-date, mainly consolidation plays, while large-cap names like Deutsche Telekom and Telefonica have weighed on overall performance.

Get more stock picks by Wall Street analysts by upgrading to InvestingPro - get 60% off today

Value stocks trade at just 7-10 times 2027 earnings, leaving room for upside as investors await deals that could improve returns.

Orange: J.P.Morgan rates Orange Overweight with a €19 price target, implying 35% upside. Analysts expect double-digit earnings, equity free cash flow, and dividend growth at the February 2026 capital markets day. Orange’s €17 billion offer for SFR was rejected, but a revised bid is expected. Acquisition of the remaining 50% of MasOrange, closing in Q2 2026, should boost cash flow. Shares trade at 10x P/E despite growth prospects.

Bouygues: Bouygues receives Overweight with a €57 price target, 34% upside. Analysts see undervalued upside from Equans, which drives 70% of 2024-2028 EBITDA growth. Stock trades at 10x P/E with 14% equity free cash flow yield, while potential bolt-on M&A could further scale growth across key markets.

SES: SES returns with Overweight and €10 price target, implying 92% upside. Shares fell 26% from October highs after Intelsat guidance disappointment. Analysts forecast €600 million equity free cash flow for 2027-2028. FCC’s planned 180 MHz C-band auction could deliver a major windfall; J.P.Morgan models only a $750 million probability-weighted payment.

BT Group: BT Group retains Overweight with 286p target, 58% upside. Free cash flow is expected to rise from £1.5 billion to £2 billion in FY2027, starting a path toward £3 billion by FY2030. Mid- and long-term guidance, top-line growth, and double-digit fibre returns underpin a projected re-rating from 4.7x to 6.0x EV/EBITDA, potentially doubling the share price.

Deutsche Telekom: Overweight with €39 target, 41% upside, but removed from Focus List. Shares gained 25% in early 2025 before retreating on FX, US competition, management changes, and German broadband softness. Stock trades at 12x 2026 P/E despite double-digit earnings growth; mid-term spectrum and fibre M&A remain key visibility points.

Telia: Upgraded to Overweight from Neutral, SEK 46 target, 22% upside. 2026 free cash flow expected to grow 13% YoY, with EBITDA growth at 3.1% and capex stable at SEK 13B. Analysts project 9% CAGR in free cash flow through 2028, leverage falling to 1.6x, and dividends growing ~5% CAGR, with Sweden mobile stabilising and Norway wholesale revenues removed.

Proximus: Upgraded to Overweight from Neutral, €10.9 target, 57% upside. After a 20% pullback post-profit warning, organic cash flow is projected to grow from €100 million in 2025 to €400 million by 2030, supporting a 20% yield. February 2026 capital markets day guidance should underpin a 30% long-term equity free cash flow yield. Interim dividend is 9%.

Tele2: Overweight with SEK 182 target, 22% upside. Shares up 50% through September, then down 12%. Analysts expect 5.3% EBITDA CAGR for 2025-2027 and 13% equity free cash flow growth in 2026, enabling higher dividends. Leverage to drop from 2.5x in 2024 to 1.7x by 2027; Baltic TowerCo deal could add ~5% extra dividend yield.

Sinch: Overweight, SEK 45 target, 65% upside. Following five quarters of organic revenue and seven quarters of gross profit growth, management’s early buybacks support growth sustainability. Mid-single digit organic growth and 14% EBITDA margin expected; stock trades at 1.1x EV/sales with 7% equity free cash flow yield.

KPN: Downgraded to Neutral from Overweight, €4.6 target, 15% upside. 2026 revenue and EBITDA growth expected to soften, with flat free cash flow. Service revenue guidance of 2.0%-2.5% YoY slightly below prior CAGR 2023-2027. Combination discounts and higher taxes offset EBITDA gains, limiting cash flow improvement.

Telenor: Downgraded to Neutral from Overweight, NOK 170 target, 15% upside. Shares down ~15% from mid-October highs after Q3 results and mid-November guidance. 2026 free cash flow may fall short of covering dividends due to Asia headwinds, Bangladesh spectrum costs, and Pakistan removal.

Sunrise: Downgraded to Underweight, CHF 37 target, 13% downside. Shares fell 15% since August. Q3 subscription revenues declined 3.1% YoY; new discount brand could dilute returns. Analysts project ongoing revenue softness in 2026, with leverage at ~5x EBITDA increasing potential free cash flow risks.

Telefonica: Neutral, €3.9 target, 4% upside. November capital markets day disappointed investors; shares fell 16%. Fiscal 2025 equity free cash flow guidance cut 18%, mid-term outlook down >20% vs consensus due to higher leases, working capital, and tax.

Vodafone: Underweight, 71p target, 25% downside. Shares up 38% YTD but German service revenue recovery relies on 1&1 wholesale; underlying service revenues still down 3% YoY. Acquisition risks from Telefonica and limited consolidation upside make valuation unattractive at 6% 2026 free cash flow yield.

Swisscom: Underweight, CHF 530 target, 9% downside. Competitive Swiss market with Sunrise and Salt offering 30%-60% cheaper products; second/third brand penetration at 35% of postpaid B2C subscribers pressures growth.

NOS: Underweight, €3.5 target, 6% downside. Portuguese market remains competitive; Digi’s entry in 2024 challenges growth. Consumer revenues declined for two consecutive quarters after 16 quarters of growth, with mixed KPIs.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.