Quebecor is undervalued, Echelon Wealth Partners says

Subscriber gains and strong execution across Quebecor’s (Quebecor Stock Quote, Chart TSX:QBR.B) third quarter financials are deserving of a price target raise from Echelon Wealth Partners analyst Rob Goff who takes his target to $34.00 (previously $32.00) to go along with his maintained “Buy” rating.

Telecom company Quebecor posted Q3/18 revenue and EBITDA of $1,058 million and $465 million, respectively. Revenue coming in below analysts’ expectations (the consensus was $1,066 million while Goff’s estimate was $1,099) but QBR beat expectations on EBITDA (the Street’s estimate was $446 million and Goff’s was $439 million)

For its third quarter, management emphasized the company’s attempts to stay at the forefront of trends and technologiecal innovation, highlighting the launch during Q3 of Fizz, Quebecor’s new digital mobile carrier and the fact that mobile subscriptions will pass cable service subscriptions in size over Q4.

“Quebecor posted solid financial results again in the third quarter of 2018, still driven by Videotron’s excellent performance,” said Pierre Karl Péladeau, President and Chief Executive Officer of Quebecor, in a press release. “Adjusted income from continuing operating activities was up $38.3 million or 36.9 per cent, reflecting the increase in our interest in the income of Quebecor Media, which became a wholly owned subsidiary on June 22, 2018, combined with the increase in Videotron’s profitability.”

Goff says the new Fizz product should broaden the company’s wireless target market by approximately ten per cent and comments that he’s encouraged by Quebecor’s “aggressive product/branding pipeline, where betting against QBR’s ability to roll out new services has been an abject mistake.”

The company’s financial performance over Q3 and subscriber increases impacted Goff’s forecasts, where he’s now calling for 2018 revenue and EBITDA of $4,290 million (previously $4,304 million) and $1,729 million (previously $1,682 million), respectively. His 2019 revenue and EBITDA estimates have been revised to $4,527 million (was $4,454 million) and $1,805 million (was $1,714 million), respectively.

“We believe our price target leaves room for further upward revisions with continued execution to plan,” says Goff in a research update to clients on November 9. “With its successful refinancing of its convertible and the minority repurchase, investors see a much clearer path as QBR moves towards a dividend growth model where we see support for positive revaluation considerations as wireless continues to drive financial results and the Company aggressively deleverages.”

Goff’s $34 target represents a projected 12-month return of 25.7 per cent at the time of publication.