Telus Corporation (TSX:T)(NYSE:TU), Canada’s third-largest and fastest-growing telecommunications company, announced its second-quarter earnings results this morning, and its stock has responded by falling over 1% in early trading. Let’s break down the quarterly results and the fundamentals of its stock to determine if this decline represents a long-term buying opportunity or if we should wait for an even better entry point in the trading sessions ahead.
Breaking down the Q2 results
Here’s a quick breakdown of eight of the most notable statistics from Telus’s three-month period ended on June 30, 2017, compared with the same period in 2016:
| Metric | Q2 2017 | Q2 2016 | Change |
| Operating revenues | $3,273 million | $3,148 million | 3.9% |
| Adjusted EBITDA | $1,230 million | $1,188 million | 3.6% |
| Adjusted EBITDA margin | 37.6% | 38% | (40 basis points) |
| Adjusted net income | $404 million | $415 million | (2.7%) |
| Adjusted basic earnings per share (EPS) | $0.68 | $0.70 | (2.9%) |
| Cash provided by operating activities | $1,126 million | $892 million | 26.2% |
| Free cash flow | $260 million | $126 million | 106.3% |
| Total subscriber connections | 12.81 million | 12.494 million | 2.5% |
What should you do with Telus now?
It was a solid quarter overall for Telus, despite the slight drop in earnings, and it capped off a quality first half of the year for the company. Its operating revenues increased 3.4% to $6.47 billion, its adjusted EBITDA increased 5% to $2.5 billion, its adjusted EPS increased 2.2% to $1.42, and its free cash flow increased 103.8% to $477 million. However, the second-quarter results came in mixed compared with the consensus estimates of analysts polled by Thomson Reuters, which called for adjusted EPS of $0.70 on operating revenues of $3.26 billion, so I think that is what’s causing the weakness in its stock today.
With all of this being said, I think the decline represents a very attractive entry point for long-term investors for two fundamental reasons.
First, it’s undervalued. Telus’s stock now trades at just 16.4 times fiscal 2017’s estimated EPS of $2.73 and only 15.5 times fiscal 2018’s estimated EPS of $2.88, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 18.4. These multiples are also inexpensive given its estimated 4.7% long-term earnings-growth rate.
Second, it has one of the best dividends in the market. Telus currently pays a quarterly dividend of $0.4925 per share, equal to $1.97 per share annually, which gives it a lavish 4.4% yield. The company is also on pace for 2017 to mark the 14th consecutive year in which it has raised its annual dividend payment, and it has a dividend-growth program in place that calls for annual growth of 7-10% through 2019, which makes it both a high-yield and dividend-growth play today.
With all of the information provided above in mind, I think all Foolish investors should strongly consider making Telus a long-term core holding.
