Are interest rates taking the wind out of Telus’s sail?

Telus (Telus Stock Quote, Chart, News TSX:T) has picked up a lot over 2019, although the stock has been flat over the past month.

That slowdown could be a sign of things to come, says portfolio manager Norman Levine, who advises to hold off on buying Telus at least over the near term.

Like much of the market in 2019, Telus charged out of the gate in January and never really looked back, climbing a whopping 23.6 per cent from January 1 to June 6. But the stock has trailed off since and even with a positive response from the market to its latest earnings report in November, Telus has been stuck to around the $50 mark for a while now.

The sideways trading may continue into the new year, says Levine, managing director at Portfolio Management Corporation, who spoke to BNN Bloomberg on Wednesday.

“Telus, Rogers and BCE, the three big telecom providers in Canada have been excellent places to be, of late, because interest rates have stayed down. They had a run-up earlier in the year when interest rates collapsed. Rates have started to creep up a little bit here and it’s starting to take the wind out of Telus, Rogers and BCE,” Levine said.

“Nobody knows where rates are going and that has been proven over the last few years — people guess all the time and they’re always wrong, so I can’t guess where [Telus] will go in the short term, but it looks like it wants to go down for now. So, if you’re thinking of buying it, I’d put it off for a little bit,” he said.

Telus’ share price spiked after its third quarter report on November 7, which beat analysts’ estimates on earnings, even as the company’s profit fell from a year earlier. The telecom company saw its net income drop 1.6 per cent to $440 million while revenue rose 2.6 per cent to $3.7 billion. On an adjusted basis, Telus’ EPS was $0.76 per share compared to the consensus expectation of $0.75 per share.

“TELUS reported strong operational and financial results for the third quarter, including robust customer growth across both our wireless and wireline business segments. The expansion of our subscriber base by 246,000 customers was driven by high-quality mobile phone net additions, strong growth in connected device subscribers and industry-leading wireline net additions,” said Darren Entwistle in a press release.

While the three big telcos in Canada generally follow each other in terms of stock performance, the past couple of quarters has seen a divergence, in part due to the initiation of unlimited wireless data plans early this summer, first by Rogers and then by BCE and Telus. Results have shown strong adoption by Rogers customers, which hurt the company’s bottom line as overage charges related to wireless use tend to be lucrative. Both BCE and Telus have been shown to take a more measured approach to transitioning customers to unlimited plans.

Telus had 111,000 net mobile phone additions over its third quarter, which was 10,000 lower than a year earlier, with Entwistle saying that the drop was in large part due to Telus more or less staying on the sidelines when it came to converting customers to unlimited plans.

Levine says that even with their ups and downs, Canadian telcos like Telus are a must-have for investors.

“Generally, I think they should be part of everyone’s portfolio for diversification, because they’re defensive stocks and they have a great yield,” Levine said. “But they look vulnerable here in the near term as rates creep up.”