Telus stock is looking attractive, says Echelon Wealth

Ahead of its fourth quarter 2017 results, Canadian telecom biggie Telus (Telus Stock Quote, Chart, News: TSX:T) has maintained its “Buy” rating from Echelon Wealth’s Rob Goff, who says that further growth in wireless will be key to the company’s success going forward.

Telus will release its Q4 results before the opening bell tomorrow, with an earning call scheduled for 12 pm noon (EST), and investors will be keen to see whether the company can meet consensus estimates in revenue ($3.439-billion), EBITDA ($1.157 billion) and free cash flow ($258 million), numbers which Goff says are in line with Echelon’s own.

“Looking forward to 2018, we forecast full-year revenue/EBITDA/FCF is forecast at $13.84/5.18/1.56B, for a y/y growth of 4.2%/6.1%/64%, also in line with consensus of $13.83/5.18/1.46B,” says the analyst in a February 6 report to clients.

Goff points to the company’s “chronic FCF positive” position evidenced by its Q317 results, saying that after hitting a peak in capital expenditures last year, capex for 2018 and beyond should keep declining.

“Our forecasts have TELUS generating FCF of $1,564M for 2018, while reflecting its program of annual dividend increases of 7%-10%. We have TELUS exiting 2018 with debt:EBITDA at 2.57:1, down from 2.77:1 for 2017,” says the analyst.

A big part of Telus’ story, though, will depend on how well the other big players, namely, Rogers, Bell and Shaw, will fare in Canada’s hotly contested wireless market.

Goff has a “Buy” rating for Rogers (which takes top ranking for Echelon in the space) and a “Hold” rating for both Bell and Shaw. In particular, Goff sees Bell’s more sluggish growth to be hampered by its too-heavy reliance on wireless (which represents a “relatively modest” 36 per cent of its EBITDA), with its competitors benefitting in the process.

“We believe BCE’s wireless growth has greater leverage to subscriber ARPU ahead of adding incremental subscriber growth, where the competitive dynamics are such that ARPUs and COAs and in turn EBITDA would be negatively impacted by heightened competition,” says the analyst. “This view is positive for TELUS and Rogers.”

Goff sets a target price of $52.00 for Telus, representing a projected return of 19 per cent.