Telus (TSX:T)(NYSE:TU) has done a magnificent job of outperforming its peers in the Big Three Canadian telecom scene throughout the COVID-19 pandemic. The stock nearly posted a full recovery to its pre-pandemic all-time highs before pulling back modestly while most of its peers treaded water.
With Telus stock now fresh off of a 5% dip (half a correction), should investors look to back up the truck ahead of what could be an economic reopening for the ages? Or would it be wise to wait for an even larger pullback, as COVID-19 cases continue to surge across the nation?
Telus stock doesn’t look cheap, but it is
By just looking at the chart, it doesn’t seem like there’s much value to be had in Telus stock at these levels.
Telus’s bigger brother BCE is off 10% from its high, and its dividend is slightly more swollen at 6%. Based on traditional valuation metrics, BCE looks to be the better value here. When you have a look under the hood of Telus, though, it becomes more apparent that Telus actually still offers the better bang for your buck, despite the richer price-to-earnings (P/E) multiple (currently at 27.2 versus 21.5 for BCE).
Telus has been remarkably resilient through the worst of this pandemic. The company lacks a legacy media business, and with its international IT business in Telus International now spun off, the company can now narrow its focus on building out 5G infrastructure. The company is going strong, and at this rate, I think it can continue to take share away from its rivals operating on its turf on the west coast, which I don’t think will be able to keep up.
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Ready for a 5G boom
Telus posted impressive numbers, despite prominent lockdown headwinds. The wireline has been a major source of strength of late. Once COVID-19 lockdowns go away and people head out again, I suspect the strength will move into wireless, as it continues investing heavily in its transition to 5G.
The company has a reputation for having one of the better-quality networks in Canada. It’s won more than its fair share of awards. It’s this reputation of being the best in its class that I believe will allow Telus to continue to gain ground on its peers, most notably Shaw Communications, which was recently picked up by rival Rogers Communications.
Telus stock: A winner that’ll probably keep on winning
Telus has its first-quarter earnings results on tap for May 7.
Analysts at RBC Capital seem to think that the company could post another round of stellar numbers. RBC sees revenues coming in at $3.95 billion alongside an adjusted EBITDA of $1.486 billion, also noting that the $1.5 billion capital spending program will allow Telus to profit from considerable 5G growth. RBC has a $30 price target on shares of Telus, suggesting around 17% worth of upside. However, it is worth noting that RBC’s target is slightly below that of the consensus target of $31.50.
For those looking to bet on the 5G trend, Telus may be one of the best ways for Canadians to do it before the economy has a chance to fully reopen. The stock trades at 2.1 times sales, 2.7 times book value, and 7.7 times cash flow, all of which are modestly below that of the telecom industry average multiples of 2.5 times, 3.2 times, and 7.8 times, respectively.
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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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV and TELUS CORPORATION.