Telus Corporation’s (TU) improved confidence -- related to 2011 earnings and free cash flow outlook with cost reduction plans and further investments in broadband infrastructure expansion -- encourage us to maintain our positive view on the company.
Though fourth quarter earnings missed the Zacks Consensus Estimate by 6 cents, it rose 40% year over year on strong data and wireless revenue combined with healthy Optik TV and Optik high-speed Internet services.
The second-largest Canadian telecommunications company expects its 2011 results to be driven by continuous wireless subscriber growth, accelerated wireless data services, growing operating earnings as well as reduced financing costs due to lower interest rates.
The company expects consolidated revenue and EBITDA to increase by 1% to 4% and by 1% to 6%, respectively, from 2010 levels. Earnings per share and free cash flow are expected to grow in the double digits in the range of 7% to 19% and 7% to 27%, respectively, based on improved operating profits, stable capital expenditures and a significant reduction in both cash taxes and financing costs. The Zacks Consensus Estimate for fiscal 2011 is $3.74, representing double-digit growth of 14.22% annually and within management’s expectation.
While Telus expects wireline revenue to drop as much as 2% due to customers shifting to mobile devices, wireless revenue is expected to grow 4% to 7% from its HSPA+ network investments.
We remain encouraged by Telus’ prospects in wireless data growth given new devices, technology upgrades, strong adoption of smart phones, deployment of HSPA+ Dual Cell technology as well as rapid expansion of its 3G wireless coverage, which could fuel wireless revenue growth. In addition, popular smart phones like BlackBerry (RIMM) and iPhone (AAPL) (launched in late 2009) will provide Telus competitive advantage over other dominant players such as Rogers Communication (RCI) and BCE Inc. (BCE).
On the wireline side, the company’s continued investments to widen its footprint in the fiber optic network, i.e. Optik TV, and High Speed Internet services will boost its profitability. Moreover, the company remains committed to deliver attractive returns to shareholders in the form of higher dividend payouts.
Consequently, we are maintaining our long-term Outperform recommendation on Telus supported by the Zacks # 2 (Buy) Rank.
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