Quebecor (TSX: QBR.B) shares have been going parabolic lately, but that’s no reason to avoid the stock, especially if you’re a younger, long-term value investor who values dividend growth far more than the upfront yield. Undoubtedly, the Quebec-based telecom behind Freedom Mobile is undergoing an ambitious national expansion, and one that could help make the relatively small $12 billion company a predictable growth play for the next decade. The only thing better than a solid growth strategy is one that comes with a fairly high degree of predictability.
With robust cash flows and tremendous earnings growth potential as the proven management continues to invest in its network (and value proposition) to take away more telecom customers from the incumbents, I do think the edge goes to shares of QBR.B, rather than the Big Three telecoms, many of which are a country mile away from their all-time highs. Though it’s too soon in the game to tell if Quebecor can take enough market share such that it becomes a titan in the Canadian telecom scene, I think there’s ample room to run.
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Taking on the Big Three
At this juncture, the Big Three players, who’ve been dominant over the decades, aren’t that much bigger, especially after the many years of share price pressure they’ve been through. Believe it or not, the Big Three telecom stocks are now at or slightly below the $30 billion market cap mark. Now, that’s still quite big, but comparatively speaking, I think that further pains for the titans and more momentum behind Quebecor might begin to even the playing field a bit.
In any case, Quebecor is just big enough to actively invest a great deal in bolstering its services while being small enough to still be a source of tremendous gains for its long-term investors. If you’re a mid-cap investor who wants more growth and a potential jolt from lower interest rates (the Bank of Canada might not be done with the cuts quite yet), I’d say Quebecor stock is the name to go with, even though I do suspect that the major telecoms will reposition in a way such that the Quebec-based icon’s value edge might erode by a bit.
In short, Quebecor needs to keep flooring it while keeping customers happy with good deals. Otherwise, the growth tide could lower. Either way, I think investors are in good hands with management.
Indeed, the big telecoms have been cutting into their labour force of late. And while dividends are still quite hefty for some of the names, I think that there’s always the option that the big telecoms hold off on dividend growth (or embrace some cuts) in an attempt to get aggressive with capex. If you can’t offer lower prices to consumers, the quality level should go higher.
Quebecor has what it takes to grow further
But, for the time being, it seems like Quebecor is what’s working today at a time when Canadian customers are hungry for a great deal. And with some of the most competitive plans under its banner, I think Quebecor could stay robust for some time. However, it can’t afford to be complacent. The focus must be on value because, like it or not, the Big Three incumbents are undergoing transformations of their own.
And, eventually, I do think we’ll see some form of equilibrium that might make it a bit harder for Quebecor to grow. But, in my opinion, that’s many years from now, so QBR.B stock looks great as shares look to break out further. At just 14.4 times trailing price to earnings (P/E), I think there’s room for more upside, even after soaring over 62% this year alone!
