Telus Digital Experience upgraded at National Bank

Telus Digital Experience (Telus Digital Experience Stock Quote, Chart, News, Analysts, Financials TSXV:TIXT) is showing early signs of a turnaround, prompting National Bank of Canada Financial’s Richard Tse to upgrade the stock, in a May 9th update, to “Outperform” and raise his price target to US$3.50, citing improving fundamentals, stable guidance and what he sees as an attractive entry point after years of decline.

Telus Digital Experience reported solid results for the first quarter of fiscal 2025, with revenue of $670-million and adjusted EBITDA of $90-million, both slightly above NBCFM’s expectations. The company also kept its full-year forecast unchanged, aiming for 2% organic growth, which would bring in about $2.71-billion in revenue and a 14.8% EBITDA margin, in line with what analysts had projected.

“We are upgrading Telus Digital (TIXT) to Outperform (from Sector Perform) based on valuation and what we believe to be an inflecting outlook following a number of years of continuing declines,” Tse said. “While that’s not to say the underlying model will have margins reverting to previous levels, it appears the company is executing to recast its services towards growth markets, which we think sets up for improving numbers looking ahead.”

Tse thinks Telus Digital will post Adjusted EBITDA of $402.1-million on revenue of$2.71-billion in fiscal 2025. He expects Adjusted EBITDA of $445.1-million on a topline of $2.78-billion in fiscal 2026.

There were no material changes to the full-year estimates for 2025 or 2026, with revenue and EBITDA each holding steady. The only notable revision came in the Q1 actuals, where reported revenue came in $2-million (2%) above the prior estimate and adjusted EBITDA was $20-million (3%) higher than expected. These positive surprises did not lead to changes in the full-year outlook.

Tse sees early signs of a turnaround at TELUS Digital and believes the current valuation offers a good entry point for investors. He upgraded the stock and raised the price target, saying the company is starting to stabilize and show improvement across key areas.

“All in, we believe FQ1’25 was a solid quarter relative to expectations with increasing stabilization across a number of business segments where the company’s top five largest customers grew both sequentially and Y/Y, including its large social media customer (in our opinion, Meta), which grew Y/Y after continued declines in FY24. At 4.1x EV/Adj. EBITDA (after adding back SBC) on FY25E; we see an attractive risk-to-reward profile,” he said.

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