Is TIXT stock a buy?

Its first quarter results are in the books and National Bank Financials analyst Richard Tse is feeling less bullish about Telus International (Telus International Stock Quote, Chart, News, Analysts, Financials TSX:TIXT).

On May 9, TIXT reported its Q1, 2024 results. The company posted Adjusted EBITDA of $152-million on revenue of $657-million, a topline that was down 4% year-over-year.

“Telus International delivered first quarter results in line with our expectations, amidst a backdrop of lingering macroeconomic pressures,” CEO Jeff Puritt said. “At all levels and across all areas of our organization, we continue to focus on further establishing ourselves as the AI-fuelled customer experience partner of choice by our clients, prospects and partners, as well as throughout the industry based on our differentiated end-to-end service offerings and expertise. With this objective in mind, we are starting to see the success of our efforts manifest through the client mandates we are winning, the continued evolution of our capabilities, the partnerships we are forming and the industry recognition we are receiving.”

Tse says TIXT is not a cheap stock, currently.

“Consistent with our earnings preview, TI pointed to (a continued) challenging environment with elongated sales cycles and some customers paring back service levels, particularly in Europe as a Top 3 (“Leading Social Media”) client had another quarter of reduced volume, representing <10% of revenues," he wrote. "The result was -5% Y/Y (in CC) or -10% (NBF estimate) excluding volume from TELUS. Looking ahead, Management reiterated F24 guidance that calls for revenue growth of 3% - 5% Y/Y, consistent with what a number of comparables have been pointing to for a calendar H2 recovery. If you’ve been following our research, you may recall we had pointed out that TIXT was trading at a premium to peers under comparable growth profile; with today’s pullback, TIXT is now trading in line with those compsat 5.2x EV/CY24 EBITDA when adjusting for TI’s metrics that do not add back SBC. We think TIXT is fairly valued." In a research update to clients May 9, Tse maintained his "Sector Perform" rating but lowered his price target on TIXT from (US) $10.00 to $7.50. The analyst thinks TIXT will post Adjusted EBITDA of $630.2-million on revenu of $2.81-billion in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $680.0-million on revenue of $2.97-billion the following year. "With TIXT’s valuation now in line with the comps – we see the name being fairly valued. We maintain our Sector Perform rating albeit with a revised price target of US$7.50 (was US$10) based on revised inputs to our multi-staged DCF. Our target implies an EV/Sales of 1.3x and an EV/EBITDA of 5.9x on F24E (was 1.6x and 7.0x)," Tse concluded.