Is Telus’ (TSX:T) Stock a Buy Before Earnings?

Telus (TSX:T)(USA) is expected to release second quarter results on Friday. Is this Big Three telecom stock a buy before earnings?

| More on:
Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization

Image source: Getty Images

The earnings season is ramping up. This week, there are several high-profile TSX-listed companies scheduled to report earnings. Among them, Telus (TSX:T)(NYSE:TU) is on deck to report second quarter results before the bell on Friday. 

This quarter will be among the most watched in recent history. Investors will finally begin to grasp the impacts of COVID-19 mitigation efforts and the subsequent economic shutdown. 

Is Telus a buy before earnings? Let’s take a look. 

Q2 expectations

Analysts are expecting Telus to post earnings of $0.28 per share and revenue of $3.45 billion. This represents a drops of 17.6% and 1.7% over the second quarter of 2019.

Looking forward, Canada’s second-largest telecom is expected to see full-year earnings drop by 13.2% in 2020 before rebounding by 12% in 2021. While earnings will remain pressured, revenue is still expected to grow by 2.4% and 8.9% in 2020 and 2021 respectively. 

The significant drop in earnings is to be expected. One need only look at into Rogers Communications’ (TSX:RCI.B)(NYSE:RCI) second-quarter results for insights. 

Rogers, another Big Three telecom, missed on profitability expectations and revenue declined by 16.4% year over year. The biggest impacts on financials included big drops in the wireless service and equipment revenue, and the halving (-50%) of media revenue. Furthermore, roaming revenues dropped by approximately 90% as travel came to a halt. 

Similarly, wireless subscriber growth – a key industry metric – stalled. In fact, Rogers lost 67,000 net wireless subscribers. On the bright side, Rogers isn’t seeing many delayed payments or suspended wireless accounts. 

Bottom line, Rogers’ saw notable impacts across all of its segments, and Telus is likely to experience the same. 

Historical performance

Typically a reliable performer, Suncor’s quarterly earnings results usually come in line with expectations. Over the past 12 quarters, Telus has only missed earnings expectations once. The lone miss came last quarter which included a glimpse into COVID-19 impacts. 

In terms of revenue, Telus has a tendency of beating estimates. It has beat estimates in 10 of the past 12 quarters. Notably, the two misses came in the last four quarters, which implies increasing uncertainty. 

Not surprisingly, revisions have been trending downward. Over the past 90 days, seven of the 15 analysts have revised estimates downwards. On average, quarterly earnings estimates are down 8% over the past few months. Worth noting is that not a single analysts is revising upwards. 

Given these downward revisions, even an earnings beat may not be enough to push Telus’ stock upwards. In fact, it will likely require a meaningful beat along with a better-than-expected outlook to drive any meaningful share price appreciation. Perhaps the company’s burgeoning Health segment can help propel its stock higher. 

Is Telus a buy?

Despite a big market rebound, Telus’ share price is still down by 8% year to date. The industry is facing considerable uncertainty, and although its products are an essential service, the markets are taking a cautious approach with the industry. 

Despite the uncertainty, as one of Canada’s Big Three telecoms, Telus’ dominant market position makes it a core holding. The company currently yields an attractive 5.05% and is a Canadian Dividend Aristocrat. 

Is the company a buy before earnings? Telus is typically not a stock you trade. That said, if you are worried about upcoming earnings, then it might be best to average into your position before and after second-quarter results.

Bottom line, Telus remains a strong foundational stock for investors. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien owns shares of TELUS CORPORATION. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

Here Are My Top 5 Dividend Aristocrats to Buy Right Now

Now is the time to buy these top five dividend aristocrats at their two-year low before they recover to 2021…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

Is NorthWest REIT Stock the Best High-Yield Dividend for You?

NorthWest REIT (TSX:NWH.UN) offers a substantial dividend, but exercise caution with this riskier stock.

Read more »

Dividend Stocks

Income Stocks: A Once-in-a-Decade Chance to Get Rich

These two income stocks are among the best on the TSX for those seeking consistent total returns over a long-term…

Read more »

dividends grow over time
Dividend Stocks

3 Top Royalty Stocks With Dividend Yields of up to 9%

When it comes to secured dividends, these three are top notch. Each offers exposure to royalties through franchising and ultra-high…

Read more »

Golden crown on a red velvet background
Dividend Stocks

This 8 Percent Dividend King Pays Out Every Month

Canoe EIT Income Fund (TSX:EIT.UN) is a staple for monthly income investors.

Read more »

sad concerned deep in thought
Dividend Stocks

Should You Buy Fortis or TC Energy Today?

These stocks have great track records of dividend growth.

Read more »

Dice engraved with the words buy and sell
Dividend Stocks

A&W Stock: Buy, Sell, or Hold?

Shares of A&W (TSX:AW.UN) stock popped by 20% after a major corporate restructuring announcement investors love.

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Monthly Paying Dividend Stocks With Handsome 7% Dividend Yields

Given their healthy cash flows and high yields, I am bullish on these three monthly-paying dividend stocks.

Read more »