TELUS Corporation’s poor performance in the market can be attributed to its expensive valuation and weak earnings when compared to industry rivals, such as AT&T and Verizon. The basic earnings per share for the company in both 2022 and 2023 were notably weak, failing to cover the dividend payments. Furthermore, TELUS’ payout ratio through earnings reached nearly 250%, while its competitors, AT&T and Verizon, comfortably covered their dividends. Although there was some hope with the free cash flow being slightly lower than the dividend in 2023, TELUS experienced an increase in net debt and net debt to EBITDA since the first quarter of 2022. Despite impressive net additions, the average revenue per subscriber dipped in the fourth quarter of 2023. While TELUS is predicted to cover dividends through free cash flow in 2024 with projected higher EBITDA and stable CapEx, the market currently shows little concern for the company’s debt to EBITDA ratio, but it may raise concerns in the future. While TELUS’ valuation has become more reasonable, AT&T still appears to offer better value with a higher free cash yield. The recommendation according to the article is to maintain a “hold” rating for TELUS stock, with a potential “buy” opportunity emerging if the stock price drops below $20.00. Investors are advised to conduct their own research and seek professional advice when making investment decisions.

TELUS Corporation’s Poor Performance

Attributed to Expensive Valuation and Weak Earnings

Compared to AT&T and Verizon

TELUS Corporation, a prominent telecommunications company, has recently faced a series of financial challenges that have led to poor performance in the market. Analysis reveals that this underperformance can be attributed to the company’s expensive valuation and weak earnings, particularly when compared to major competitors such as AT&T and Verizon. In this article, we will delve into the specific factors contributing to TELUS’ lackluster performance and explore potential implications for investors.

Weak Financial Results

One of the key contributors to TELUS’ poor performance is the company’s weak financial results. In both 2022 and 2023, TELUS reported basic earnings per share that did not cover the dividend. This alarming trend is further emphasized by the fact that the company’s payout ratio via earnings was close to 250%. In stark contrast, industry giants AT&T and Verizon comfortably cover their dividends, highlighting the disparity between TELUS and its competitors.

Additionally, TELUS’ free cash flow per share was lower than the dividend during this period, although it showed signs of improvement and was within striking distance in 2023. While this indicates some potential for recovery, it remains essential for investors to closely monitor TELUS’ financial performance moving forward.

Increase in Net Debt and Net Debt to EBITDA

Since the first quarter of 2022, TELUS has experienced a notable increase in net debt and net debt to EBITDA ratio. This increase can pose significant challenges for the company, as it indicates higher debt levels relative to its earnings. While the market may not currently express concern over this issue, it is crucial to recognize the potential future implications of TELUS’ mounting debt.

Slipped Average Revenue per Subscriber

Despite TELUS’ ability to attract a significant number of net additions in subscribers, the average revenue per subscriber slipped in the fourth quarter of 2023. This decline raises concerns about the company’s ability to generate sufficient revenue from its customer base. TELUS will need to address this issue promptly to regain its footing in the market.

Forecast for Dividend Coverage

Looking ahead, there is hope for improvement in TELUS’ dividend coverage. Projections indicate a potential increase in EBITDA, supported by stable CapEx, which would ultimately enable the company to cover dividends through free cash flow by 2024. While this forecast provides optimism, it is vital to monitor TELUS’ performance closely to determine if the company can achieve these projected milestones.

Concerns about Debt to EBITDA Ratio

Despite the current lack of market concern, TELUS’ debt to EBITDA ratio should not be overlooked. As the company’s debt levels continue to rise, particularly in relation to its earnings, it may become a growing concern in the future. Investors should closely monitor TELUS’ debt management strategies and consider the potential impact on the company’s overall financial health.

Valuation Comparison

An additional factor to consider when assessing TELUS’ performance is its valuation in comparison to competitors. While TELUS’ valuation has become more reasonable in recent times, it still falls short when compared to AT&T. AT&T not only boasts a more favorable valuation but also offers a higher free cash yield. Investors should take these factors into account when evaluating investment opportunities in the telecommunications industry.

Rating and Buying Advice

Given TELUS’ current performance and the various challenges it faces, this article advises a “hold” rating for TELUS stock. However, for investors seeking an entry point, it may be worth considering a “buy” if the stock’s price falls below $20.00. It is crucial to recognize the risks associated with TELUS’ financial situation and exercise caution when making investment decisions.

Importance of Due Diligence

In light of the complexities surrounding TELUS’ performance, it is paramount for investors to conduct their due diligence before making any investment decisions. While this article has provided an analysis of TELUS’ challenges and outlook, it is essential to conduct independent research and consult with financial professionals to gain a comprehensive understanding of the risks and potential rewards associated with investing in TELUS or any other company.

In conclusion, TELUS Corporation’s poor performance is primarily attributed to its expensive valuation and weak earnings compared to industry competitors such as AT&T and Verizon. The company’s financial struggles, coupled with an increase in net debt and slipped average revenue per subscriber, have raised concerns among investors. While forecasts suggest improved dividend coverage and a more reasonable valuation, the potential risks associated with TELUS’ debt management and future financial health should not be overlooked. Investors are strongly advised to conduct thorough research and seek professional guidance before making any investment decisions.