Is Telus Corporation a Buy Following its Strong Q4 Performance?

Telus Corporation (TSX:T)(NYSE:TU), Canada’s third-largest and fastest-growing telecommunications company, announced its fourth-quarter earnings results on Thursday morning, and its stock started the day by slowly moving higher before ending the day down just over 0.6%. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should be buyers of the stock today.

A very strong quarterly performance

Here’s a quick breakdown of 10 of the most notable statistics from Telus’s three-month period ended on December 31, 2017, compared with the same period in 2016:

Metric Q4 2017 Q4 2016 Change
Wireless revenues $1,982 million $1,856 million 6.8%
Wireline revenues $1,546 million $1,515 million 2.0%
Total revenues $3,467 million $3,305 million 4.9%
Adjusted EBITDA $1,164 million $1,110 million 4.7%
Adjusted EBITDA margin 33.8% 33.7% 10 basis points
Adjusted net income $328 million $316 million 3.8%
Adjusted basic earnings per share (EPS) $0.55 $0.53 3.8%
Cash provided by operating activities $979 million $732 million 33.7%
Free cash flow (use) $274 million ($191 million) N.M.
Total subscriber connections 13.05 million 12.673 million 3.0%

Introducing its 2018 outlook

In the press release, Telus also introduced its outlook on 2018; here’s a breakdown of what it expects to accomplish:

Metric 2017 results 2018 targets Growth
Revenues $13,304 million $13,835 million to $14,100 million 4-6%
Adjusted EBITDA $4,891 million $5,105 million to $5,230 million 4-7%
Basic EPS $2.46 $2.53 to $2.68 3-9%
Free cash flow $966 million Up to $1.4 billion  Up to 45%

Should you buy Telus today?

It was a great quarter overall for Telus, highlighted by “robust customer growth,” and it capped off a solid year for the company, in which its total operating revenues increased 3.9% to $13.3 billion, its adjusted EBITDA increased 3.8% to $4.89 billion, and its adjusted basic EPS increased 1.9% to $2.63 compared with 2016; with these strong results and its positive outlook on 2018 in mind, I think its stock should have responded by soaring, but I think weakness in the overall market is what held it back.

Looking beyond its quarterly and annual performance in 2017, I think Telus’s stock represents a very attractive investment opportunity for two fundamental reasons.

First, it’s undervalued. Telus’s stock currently trades at just 17.1 times fiscal 2017’s adjusted EPS of $2.63 and only 15.8 times the consensus analyst estimate of $2.84 for fiscal 2018, both of which are inexpensive compared with its five-year average multiple of 18.9; these multiples are also inexpensive given its long-term growth potential.

Second, it has one of the best dividends around. Telus currently pays a quarterly dividend of $0.505 per share, representing $2.02 per share annually, which gives it a 4.5% yield. It’s also important to note that the telecom giant’s recent dividend hikes have it on track for 2018 to mark the 15th straight year in which it has raised its annual dividend payment, and that it has a dividend-growth program in place that calls for annual growth of 7-10% through 2019, making it one of my favourite dividend stocks in the market today.

With all of the information above in mind, I think all Foolish investors should strongly consider initiating long-term positions in Telus today.

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Fool contributor Joseph Solitro has no position in any of the stocks mentioned.

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