Telus is still undervalued, says Echelon Wealth Partners

Its stock has been rising since December, but Echelon Wealth Partners analyst Rob Goff thinks there is still money to be made on Telus (Telus Stock Quote, Chart TSX:T).

On Thursday, Telus reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted Adjusted EBITDA of $1.31-billion on revenue of $3.76-billion, a topline that was up 6.2 per cent over the same period last year.

“Telus delivered strong fourth quarter operational and financial results, concluding another year of robust customer growth, while achieving our annual revenue and EBITDA growth targets for the eighth consecutive year,” CEO Darren Entwistle said. “This continued performance is bolstered by the unwavering dedication of our Telus team to execute on our long-standing strategy, despite a highly competitive environment. Moreover, our team’s unparalleled commitment to providing exceptional customer experiences contributed materially to Telus achieving our fifth consecutive year of industry-leading wireless churn below 1 per cent.”

Goff notes that the company’s EBITDA and revenue was in-line with his estimates and the street consensus. The analyst summarized this place and time for Telus, which he now ranks as his second favourite large cap telecom provider, behind Shaw, but ahead of Rogers and Bell.

“Wireless momentum has moderated as measured by y/y gross adds and ABPU/ARPU pressures, however, our longer-term bullish view on narrowing the Cda/US penetration gap (Cda ~87%, US ~120%) along with the positive market recalibration expected about 5G deployment (IoT) remains deep-rooted,” the analyst says. “Meanwhile, our outlook on wired finds building support in strong subscriber results, further fibre deployment and declining capex intensity. As 5G should recalibrate wireless, fibre should recalibrate wired about the connected home upselling potential. Looking at the competitive intensity for wired, the wired subscriber results and capex levels supported Shaw’s pivot over one year ago when SJR reprioritized financials and comments by TELUS on its Q317 call where it discussed peak wireline capex and “chronic FCF”. We are encouraged by the wired potential and in particular with the improved market discipline in the west.”

In a research update to clients today, Goff maintained his “Buy” rating and one-year price target of $53.00 on Telus, implying a return of 17.1 per cent at the time of publication.

Goff thinks Telus will generate EBITDA of $5.72-billion on revenue of $14.98-billion in fiscal 2019.