TELUS Digital downgraded at National Bank

National Bank of Canada Financial Markets analyst Richard Tse downgraded TELUS Digital (TELUS Digital Experience Stock Quote, Chart, News, Analysts, Financials TSX:TIXT) to “Sector Perform” from “Outperform” on July 21, saying the stock now looks fairly valued after rising nearly 50% since May. He raised his target price to US$4.00 from US$3.50. The move comes as TELUS considers acquiring the remaining shares of its digital subsidiary.

“With TELUS Digital shares up nearly 50% since we upgraded to ‘Outperform’ in May, alongside the company’s solid FQ1’25 results, we are taking pause and moving to ‘Sector Perform’ given what we believe to be a reasonable valuation following the stock price move from TELUS’s interest to acquire all the remaining shares of TELUS Digital,” Tse said.

TELUS made a non-binding offer in June to buy the remaining shares of TELUS Digital for US$3.40 each. It already owns nearly 57% of the shares and close to 87% of the voting power. The offer values the company at about US$2.3-billion, or 5.1 times estimated 2025 EBITDA. Since then, TELUS Digital’s stock has climbed to US$4.00, pushing the valuation to 5.4 times EBITDA, roughly the same as Concentrix, a similar company. Given their comparable growth and profit outlook, TELUS may need to offer more to complete the deal.

“That said, even with a slightly sweetened offer, the upside from here is limited, which is why we’re downgrading from ‘Outperform’ to ‘Sector Perform,’” Tse said.

Tse expects TELUS Digital to post $402.1-million in Adjusted EBITDA on $2,711.2-million in revenue for fiscal 2025. For 2026, he forecasts growth to $445.1-million in EBITDA and $2,779.0-million in revenue and $0.32 in adjusted earnings, right in line with what the company has projected.

Tse said National Bank is expecting TELUS Digital to post Q2 2025 revenue of US$659-million and Adjusted EBITDA of US$94-million, slightly below and above the Street’s estimates, respectively. That would be 1% growth from last year.

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