Vodafone Double-Upgraded to Buy at Goldman Sachs on Improved Sector Outlook

Goldman Sachs issued a rare double-upgrade for Vodafone Group Plc, raising its rating to 'Buy' from 'Sell' as part of a broad reassessment of the European digital infrastructure sector. The investment bank cited an accelerating growth outlook for the London-based telecom giant, prompting its shares to rise 1.8% in response to the news.

Rationale for the Upgrade

Analysts at Goldman Sachs, led by Andrew Lee, significantly increased their price target on Vodafone to 155 pence from 85 pence. They argued that the company's return on invested capital is now accelerating, a shift driven by market repair in the U.K. mobile segment and enhanced cost-cutting measures.

In a note to clients, the bank stated its financial estimates for Vodafone are now above consensus for the first time in years. While acknowledging that Vodafone's structural quality "remains lower than the sector average," the analysts believe the resulting re-rating will be amplified by the company's leverage.

Bullish Call on European Telecoms

Vodafone's upgrade is part of a more optimistic outlook on the entire European telecom sector. Goldman Sachs now models a 14% compound annual growth rate for the sector's free cash flow between 2026 and 2030, which it called the highest among its defensive peers.

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The bank projects this strong cash flow will support rising shareholder returns, with yields forecast to reach 6% in 2027 and 7% in 2028. It also expects the sector's average net debt to EBITDA ratio to fall by a factor of two over the next three years. This deleveraging, the analysts noted, provides capacity for even higher returns.

Other Notable Rating Changes

Goldman's report included several other key rating adjustments across the European telecom and infrastructure landscape:

• High-Risk/Reward Buys: BT, Deutsche Telekom, and Telefonica were highlighted in this category.
• Defensive Buys: Orange and KPN were flagged as lower-risk 'Buy' rated stocks.
• Downgrades: Tower operator Cellnex was downgraded to 'Sell' from 'Neutral', with analysts citing investor uncertainty about its long-term growth outlook. Telenor and Elisa were both cut to 'Neutral' from 'Buy' due to a lack of near-term catalysts.