Risk, Reward Balance Telus - Analyst Blog
October 04 2011 - 5:23AM
Zacks
We remain on the sidelines on Telus
Corporation’s (TU) owing to the continued decline in
access line, an increasingly competitive domestic wireless market
and reduced wireless data plans.
The second largest Canadian telecommunications company faces
fierce wireless competition from Rogers
Communication (RCI) and BCE Inc. (BCE).
The entry of cable TV operators such as Shaw Communications into
the wireline market has intensified competition further.
Additionally, we believe the reduction in roaming call rates will
lower the company’s data revenues going forward.
In the recently concluded second quarter, earnings per share
missed the Zacks Consensus Estimate but was above the year-ago
earnings. The improved year-over-year growth were driven by
continued wireless subscriber growth, accelerated wireless data
services, increased smartphone sales and growing wireline networks.
These positive attributes also raise optimism on Telus’ 2011
results.
The company expects consolidated revenue and EBITDA to increase
4% to 6% and 1% to 6%, respectively, from 2010 levels. Earnings per
share are expected to grow in the range of 7% to 19% on improved
operating profits and a significant reduction in both taxes and
financing costs.
We remain encouraged by Telus’ prospects in wireless data growth
given new devices, technology upgrades, strong adoption of
smartphones, deployment of HSPA+ Dual Cell technology and the
expected launch of the 4G+ LTE network in 2012, which are expected
to fuel wireless revenue growth. But the potential roll-out of the
4G+ LTE wireless service in rural Canada depends on the ability to
acquire the 700 MHz band from the expected auction in 2012 or
2013.
In the Wireline business, Telus’ continued investments to widen
the footprint of its fiber optic network i.e. Optik TV and High
Speed Internet services across British Columbia, Alberta, and
Eastern Quebec will boost profitability.
Moreover, the company remains committed to deliver attractive
returns to shareholders in the form of higher dividend payouts.
Additionally, over the long term, the company’s balance sheet is
expected to be sound as it is develeraging its balance sheet.
Consequently, we are maintaining our long-term Neutral
recommendation on Telus supported by the Zacks #3 Rank (Hold).
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