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We’re bullish on Telus, says Echelon analyst Goff

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Telus CEO Darren Entwistle.
Investors should be bullish on Telus (Telus Stock Quote, Chart, News TSX:T), according to Echelon Wealth Partners analyst Rob Goff, who reviewed Telus’ latest quarterly results in an update to clients last Friday. Goff is keeping his “Buy” rating for Telus while upping his target to $56.00 per share from the previous $54.00 per share.

Canadian telecommunications company Telus released its third quarter financials last week, coming in with adjusted EBITDA of $1.463 billion, a year-over-year increase of 8.3 per cent, on revenue of $3.7 billion, up 2.6 per cent year-over-year. Earnings per share were down 2.7 per cent to $0.72 per share.

Telus increased its quarterly dividend to 58.25 cents per share from 56.25 cents, resulting in a yield of 4.7 per cent, while management called for capital spending over 2020 and 2021 of about $2.75 billion each year.

“These investments reflect the continued expansion of our leading fibre footprint, and positions our converged network for the future capabilities that 5G networks will enable, while supporting free cash flow expansion. Looking further out we remain excited about the future cash flow opportunities as we increasingly near the completion of our generational fibre build, additionally supporting our dividend growth program and commitment to balancing the interests of all TELUS stakeholders,” said Doug French, executive vice-president and CFO, in a press release.

Goff notes that the quarterly mobile phone subscription additions at 111,000 were largely in line with expectations, while wireless EBITDA of $976 million was below his $970-million estimate. Overall EBITDA of $1,463 million was better than both Goff’s forecast at $1,454 million and the consensus estimate of $1,449 million.

The analyst likes Telus after the strong quarter, although of Canadian telco companies, Shaw is his favourite.

“We continue to see TELUS as an exceptionally well managed provider leveraged to our longer-term bullish wireless and wired outlooks. We see continued delivery of its 7-10 per cent annual dividend growth and implied FCF growth over the longer term as strong value,” writes Goff.

“On a near- and mid-term basis, Shaw remains our top pick across the four largest providers where Shaw and TELUS benefit from their wired discipline; however, we see greater near-term leverage from Freedom given current wireless dynamics. We then rank TELUS as our second selection across the four national providers as its returns are modestly below those forecast for Shaw where it stands to realize modestly greater returns given its relative valuation discount and where we are bullish on its attacker status in wireless,” he writes.

Goff says that he has made mostly immaterial changes to his estimates following the quarterly results, calling for full fiscal 2019 revenue, EBITDA and EPS of $14,693 million, $5,626 million and $3.24 per share, respectively. Looking into fiscal 2020, the analyst forecasts revenue, EBITDA and EPS of $15,464 million, $6,162 million and $3.71 per share, respectively.

Goff’s new target of $56.00 per share represented a projected 12-month return of 18.3 per cent at the time of publication.

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