Take a pass on Telus, Ross Healy says

As one of Canada’s “Big Three” telecoms, one would think that parking your money in Telus (Telus Stock Quote, Chart: TSX:T) amounts to a nice defensive play against a potential bear market.

You’d be wrong, at least for the near future, says Ross Healy of Strategic Analysis Corporation, who sees more downside to Telus coming up.

Ahead of Telus’s third quarter earnings due on Thursday, investors may be hoping for a repeat of the company’s second quarter results delivered in August where it posted strong customer growth to go along with revenue and EBITDA growth of 5.3 per cent and 3.6 per cent, respectively.

The Q2 report drove the stock higher and helped Telus make up ground it had lost over the first half of 2018. The past two months have been a different story, however, with Telus’s share price falling from a high of $49.15 on August 17 to where it sits at the start of Tuesday’s trading at $44.81, an 8.8 per cent drop.

But while looking more attractively priced —and with a healthy dividend to boot— Healy says the stock is likely to endure more bad weather coming up.

“A couple of years ago, I was looking at BCE and the stock was right up against its fair market value. Its earnings weren’t really going anywhere and it struggled and struggled and finally the market said, ‘Ah, nuts,’ and the stock traded off beautifully. In fact it’s one of my buys for next year because it sold off that far,” says Healy, chairman at Strategic Analysis, to BNN Bloomberg.

“Telus is doing exactly the same thing that BCE was two years ago,” says Healy. “Its earnings forecasts aren’t really going anywhere and the stock is just bumbling along. This looks to me like Telus is tired and would like to come back a little, regroup and give people a fresh chance to buy it at a more reasonable price.”

For its third quarter, analysts are expecting Telus to post earnings of $0.54 per share, representing a 3.9 per cent increase year-over-year, on a top line of $2.73 billion, a 1.6 per cent year-over-year increase. Currently, the stock is off 5.7 per cent for 2018.

“My downside would probably be around 20 per cent lower —about the same amount that BCE sold off a couple of years ago,” Healy says. “It’s just giving up.”