Valued at a market cap of $30.88 billion, Telus (TSX:T) is among the largest telecom companies globally. Telus has two primary business segments: technology solutions and digitally-led customer experiences. With roughly 20 million subscriber connections, Telus serves mobile phone users and internet subscribers.
While the TSX index has more than doubled investor gains over the past decade, Telus has returned just 58% to shareholders after adjusting for dividend reinvestments. So, let’s see if Telus stock is a good buy at the current price.
How did Telus perform in Q3 of 2024?
Telus delivered robust third-quarter (Q3) results, as its operating excellence led to industry-leading customer growth and network expansion. The telecom giant added 347,000 new customers across its services, which includes 130,000 mobile phone subscribers and 159,000 connected devices.
Its Technology Solutions business showed resilient performance with EBITDA (earnings before interest, tax, depreciation, and amortization) growth of 5.6%, primarily driven by operating efficiency. Notably, Telus maintained its industry-best customer loyalty, with postpaid mobile phone churn remaining below 1% for the 11th consecutive year.
Its bundled household strategy continues to pay off, with 8% year-over-year growth in combined mobile and home service customers. In the fixed-line segment, Telus achieved substantial internet additions of 34,000 customers, particularly in Western Canada, where its PureFibre network continues to attract customers. It also reported 21,000 new TV subscribers and maintained industry-leading residential voice retention.
Telus has diversified into other sectors, such as health and agriculture, which has diversified its revenue base. Telus Health reported 4% revenue growth and a 50% increase in EBITDA contribution, supported by $331 million in annualized synergies from the LifeWorks acquisition. The division now serves 76 million lives globally, growing virtual care membership by 18% to 6.5 million clients.
Telus Agriculture and Consumer Goods (TAC) demonstrated strong performance with over 20% year-over-year revenue growth and a 65% increase in year-to-date bookings. The division’s EBITDA contribution doubled compared to the previous year.
Is Telus stock undervalued?
Looking ahead, Telus updated its TTech segment revenue guidance slightly below the original target range but maintained its EBITDA, capital expenditure, and free cash flow targets. Its focus on operational efficiency and network investments continues to support its dividend-growth program, with a 7% year-over-year increase announced, marking the 27th increase since 2011.
Telus pays shareholders an annual dividend of $1.61 per share, translating to a forward yield of 8%, making the TSX tech stock attractive to income-seeking investors.
Telus’s chief financial officer, Doug French, highlighted a strong free cash flow (FCF) of $561 million, up 58% year over year, driven by lower restructuring costs and reduced capital expenditure. Bay Street expects Telus’s FCF to increase to $2.23 billion in 2025, up from $2.06 billion in 2024.
So, priced at 13.5 times forward FCF, Telus stock is not too expensive given its estimated growth rate and rising dividend yield. Moreover, Telus maintains a solid financial position with $3.2 billion in available liquidity and an average long-term debt cost of 4.4%.
Analysts tracking Telus stock have an average target price of $23.10, indicating an upside potential of 12%. After accounting for its dividend yield, cumulative returns may be closer to 20% in the next 12 months.
