RBC raises price target on Telus

Following the company’s fourth quarter results, RBC analyst Drew McReynolds has raised his price target on Telus (Telus Stock Quote, Chart, News, Analysts, Financials TSX:T).

On February 13, Telus reported its Q4 and fiscal 2024 results. In the fourth quarter, the conpany posted Adjusted EBITDA of $1.84-billion on revenue of $5.33-billion, a topline that was up 3.5%, year-over-year.

“In the fourth quarter, our team’s relentless pursuit of operational excellence continued to differentiate the TELUS organization, driving significant customer growth and robust financial results,” CEO Darren Entwistle said. “Through our premier asset portfolio and unwavering commitment to cost efficiency, we delivered strong profitable growth to close out 2024 – momentum we intend to build upon in 2025. Our focus on margin-accretive customer expansion, globally leading broadband networks, and a customer-centric culture enabled us to achieve industry-best total customer net additions in the fourth quarter of 328,000, with 70,000 mobile phone customer additions, 194,000 connected devices, and 64,000 fixed net additions. Furthermore, this growth culminated in our third consecutive year of surpassing one million mobility and fixed customer additions, with a total of more than 1.2 million new customer additions. This performance is a testament to our unmatched bundled product offerings across Mobile and Home, powered by our PureFibre and wireless broadband networks. Indeed, our team’s passion for delivering customer service excellence contributed to continued strong loyalty across our key product lines, once again this quarter. Notably, postpaid mobile phone churn of 0.99 per cent for the full year marks the eleventh consecutive year at less than one per cent.”

The analyst says Telus is clearly a quality telco, but says investors will likely spend 2025 wondering if its valuation has become too rich.

“With TELUS outperforming large cap peers in 2024, the company’s premium valuation has notably widened (FTM [forward 12-month] EV/EBITDA of 8.2 times versus 6.1 times for Rogers and 7.1 times for BCE), suggesting that valuation risk has risen on the stock, particularly in the low revenue growth environment,” he wrote. “While given this premium valuation we see limited potential for multiple expansion in 2025, we believe TELUS as the structural leader within the group can maintain a premium valuation provided that certain boxes are ticked through 2025– 27, including: (i) sustaining 4-5-per-cent or higher adjusted EBITDA growth for TTech systematically realizing cost efficiencies; (ii) continuing to make progress toward management’s 10-per-cent consolidated capex intensity objective (well below 16-19 per cent for large cap peers); (iii) turning the DRIP off post-mmWave auction in 2025/2026; (iv) reducing leverage into the low-3-times range while pausing on major M&A; (v) renewing the annual dividend growth commitment for 2026-28, albeit at a likely lower rate (estimated up 5 per cent) versus the current 7-10 per cent; and (vi) ultimately instituting an NCIB to absorb excess FCF given the structural decline in capex.”

As reported by The Globe and Mail, McReynolds February 14 maintained his “Outperform” rating on Telus while raising his price target on the stock from $24.00 to $25.00.