On Tuesday, TELUS Corp. (T:CN) (NYSE: TU) experienced a downgrade in stock rating from Buy to Hold by Canaccord Genuity, accompanied by a reduction in the price target from Cdn$23.00 to Cdn$21.50. The decision followed the company's second-quarter results released on Friday, which were marked by weaker-than-expected wireless performance and a revised free cash flow (FCF) forecast.
The quarter was described as net negative, primarily due to disappointing wireless metrics. TELUS reported a 3.4% decrease in average revenue per user (ARPU) and a mere 0.9% growth in wireless service revenue. Additionally, the company adjusted its free cash flow guidance downward, from Cdn$2.3 billion to Cdn$2.1 billion, although it managed to maintain profitability with the help of robust margins.
The analyst from Canaccord Genuity pointed out the challenges TELUS faces, including its significant exposure to the wireless sector, which is under pressure, and competitive conditions in the wireline segment, particularly in Western Canada. These factors are anticipated to exert near-term pressure on the stock.
In terms of free cash flow yield, defined by Canaccord Genuity, TELUS is projected to trade at 6% for the year 2025. This forecast is not considered particularly attractive when compared to its industry peers. The combination of these concerns has led to the revised outlook and price target for TELUS shares.
In other recent news, TELUS Corporation disclosed robust financial performance and significant customer growth in its Q2 2024 report. The telecommunications giant added 332,000 net new customers across its various business segments, leading to a resilient EBITDA growth of 5.6%.
Despite a slight decrease in consolidated operating revenues by 0.7% year-over-year, TELUS achieved an adjusted EBITDA increase of 18% and a net income rise of 13%. The company also reported strong sales performance with year-to-date sales bookings more than doubling compared to the previous year.
TELUS Health and TELUS Agriculture and Consumer Goods divisions reported over 15% revenue growth and are expected to contribute significantly to EBITDA growth. However, TELUS Digital Experience faced challenges impacting revenue and profit expectations for 2024. The company forecasts positive organic growth in the coming quarters, driven by acquisitions and improved revenue performance.
TELUS aims to accelerate growth rates to over 6% in the next six months, leveraging the health and agriculture sectors.
InvestingPro Insights
In light of the recent downgrade for TELUS Corp. by Canaccord Genuity, it's worth considering additional insights from InvestingPro. Despite the challenges faced in the wireless sector, TELUS has demonstrated a commitment to rewarding shareholders, as evidenced by its consistent dividend growth, maintaining payments for 26 consecutive years. This is a testament to its financial resilience and may appeal to income-focused investors. The current dividend yield stands at an attractive 6.95%, well above the industry average.
However, with analysts revising earnings downwards and the stock trading at a high earnings multiple of 43.49, potential investors should be cautious. The P/E ratio adjusted for the last twelve months as of Q2 2024 is at 25.29, suggesting that the stock may be priced optimistically relative to its earnings. Moreover, the company's short-term obligations exceeding its liquid assets may raise concerns about its immediate financial flexibility.
For investors looking for further insights, there are additional InvestingPro Tips available that could provide a more comprehensive investment outlook on TELUS Corp. (https://www.investing.com/pro/TU).
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