Key Takeaways:
- Strategic Pivot: Telefónica (TEF) is shifting focus from legacy voice to high-growth digital services via Telefónica Tech, while targeting €3 billion in cost savings by 2030.
- Price Projection: Our model suggests TEF stock could climb to €4.55 per share by December 2027.
- Expected Returns: This target implies a robust 14.7% annualized return, offering significant upside from current lows.
- The “Reset”: The investment case hinges on management’s controversial decision to reset dividends and delist from the NYSE to prioritize aggressive debt reduction.
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Telefonica (TEF) is currently executing one of the most aggressive “resets” in the European telecom sector.
The company recently initiated a voluntary delisting from the New York Stock Exchange (NYSE), a move designed to slash administrative costs and simplify its corporate structure.
Trading near €3.45, the stock has been pressured by the announcement of a dividend reset. However, this pain is part of a larger plan: “Transform & Grow.”
Management aims to deliver €3 billion in cumulative savings by 2030 through network modernization and automation.
While the dividend cut stings, it grants the company the “financial flexibility” needed to fund its high-margin digital evolution without overburdening its balance sheet.
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What the Model Says for TEF Stock
We evaluated Telefónica’s potential through 2029, factoring in the “Tech” pivot and its exit from volatile Latin American markets.
Using a consensus-based forecast of -3.4% Revenue Growth (CAGR) and 12.6% Operating Margins, our model projects a short-term rise to €4.55.
However, the real opportunity is in the long term. Our advanced model suggests that as efficiency gains compound, shares could reach €6.88 by the end of 2029.
This assumes an Exit P/E Multiple of 11.0x, reflecting a re-rating as the company proves it can grow free cash flow despite a smaller geographic footprint.
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Our Valuation Assumptions
TIKR’s Valuation Model lets you plug in your own assumptions for a company’s revenue growth, operating margins, and P/E multiple, and calculates the stock’s expected returns.
Here’s what we used for TEF stock:
1. Revenue Growth (CAGR): -3.4%
Telefónica is prioritizing “Value over Volume” by exiting non-core regions.
This strategic contraction leads to a headline revenue decline of -3.4%, but it dramatically improves the quality of earnings by reducing exposure to volatile currencies.
The growth engine is now Telefónica Tech. This B2B division provides high-margin cybersecurity and cloud solutions, replacing declining legacy voice revenues with sticky, recurring digital income.
2. Operating Margins: 12.6%
The bull case for Telefónica is entirely about efficiency.
Management is targeting €3 billion in savings by 2030, primarily by shutting down the legacy copper network and implementing AI-driven automation.
This is a structural change, not just cost-cutting. By simplifying its operating model, the company aims to reduce CapEx intensity to below 12.0% by 2026.
We project operating margins will stabilize at 12.6%, providing the cash flow needed to deleverage the balance sheet.
3. Exit P/E Multiple: 11.0x
TEF stock currently trades at distressed multiples due to the “delisting uncertainty”.
We assume a recovery to 11.0x earnings, which aligns with historical averages for stable, cash-generative European telecoms.
If the company hits its efficiency targets, this multiple offers a significant “margin of safety” for investors entering at these levels.
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What Happens If Things Go Better or Worse?
Different scenarios through 2029 reflect the execution risk of the “Transform & Grow” plan (these are estimates, not guaranteed returns):
- Low Case: If integration delays occur or interest rates remain high, margins may stagnate, resulting in a 13.7% annual return.
- Mid Case: If the company hits its 2030 savings targets and deleverages to 2.5x Net Debt/EBITDA, we project an 18.7% annual return.
- High Case: If the market re-rates the stock faster following the legacy asset decommissioning, returns could exceed 22.8% annual return.
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How Much Upside Does Telefonica Stock Have From Here?
With TIKR’s new Valuation Model tool, you can estimate a stock’s potential share price in under a minute.
All it takes is three simple inputs:
- Revenue Growth
- Operating Margins
- Exit P/E Multiple
If you’re not sure what to enter, TIKR automatically fills in each input using analysts’ consensus estimates, giving you a quick, reliable starting point.
From there, TIKR calculates the potential share price and total returns under Bull, Base, and Bear scenarios so you can quickly see whether a stock looks undervalued or overvalued.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
