Calculated Innovation And 5G Integration Poised To Propel Future Revenue Growth

Key Takeaways

• Strategic emphasis on customer expansion and digital transformation enhances margins, boosts lifetime value, and decreases churn through PureFibre and broadband networks.
  
• Innovations in 5G, IoT solutions, and SmartHome platform offer new revenue sources, diversifying income and strengthening future growth potential beyond core telecom.
  
• TELUS faces challenges from market pressure and debt, impacting ARPU, churn rates, digital segment performance, and overall revenue and profitability growth prospects.

Catalysts

Provides a range of telecommunications and information technology products and services in Canada.

• TELUS is focusing on strategic emphasis on margin-accretive customer expansion and reducing churn, particularly through their PureFibre and wireless broadband networks. This could improve future revenue and net margins by reducing customer acquisition costs and boosting lifetime value.
  
• TELUS's efforts to integrate 5G and IoT B2B solutions show potential for increased network revenue and ARPU/AMPU in connected devices. This forward-looking strategy might lead to higher future earnings as the market for IoT and 5G services expands.
  
• The company's focus on innovation and the development of an integrated, device-agnostic SmartHome platform with AWS demonstrates new revenue source potential. This strategy is likely to impact future revenue growth positively by expanding their service offerings nationally and internationally.
  
• TELUS's ongoing digital transformation, including AI capabilities and fiber network expansion, aims to drive cost efficiencies and improve operating margins. This should enhance future net margins and earnings as digital solutions are increasingly adopted.
  
• TELUS Health and TELUS Agriculture & Consumer Goods are experiencing strong revenue growth and EBITDA improvements. Continued growth in these sectors could diversify revenue streams and positively affect future earnings, offering resilience against core telecom market pressures.

TELUS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming TELUS's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.6% today to 8.8% in 3 years time.
• Analysts expect earnings to reach CA$2.0 billion (and earnings per share of CA$1.37) by about November 2027, up from CA$923.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.2x on those 2027 earnings, down from 35.2x today. This future PE is greater than the current PE for the CA Telecom industry at 19.1x.
• Analysts expect the number of shares outstanding to decline by 0.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.57%, as per the Simply Wall St company report.

TELUS Future Earnings Per Share Growth

Risks

• Continued intense promotional activity in the market has led to a decline in ARPU (Average Revenue Per User) by 3.4%, impacting TELUS's revenue growth prospects.
  
• Competitive pressure has resulted in churn for TELUS's branded mobility and home bundled households, which increased slightly, potentially affecting net margins due to increased retention efforts.
  
• TELUS is facing ongoing industry pricing pressures that may counterbalance its efforts to maintain margins, impacting net earnings growth.
  
• The economic pressure and higher financing costs due to increased long-term debt and rising interest rates raise risks to TELUS's earnings and cash flow growth.
  
• Despite progress, TELUS's Digital segment experienced a 30% decline in adjusted EBITDA due to macroeconomic environment impacts and margin pressures, possibly affecting overall profitability.

Valuation

• The analysts have a consensus price target of CA$24.74 for TELUS based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$33.0, and the most bearish reporting a price target of just CA$21.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be CA$23.0 billion, earnings will come to CA$2.0 billion, and it would be trading on a PE ratio of 21.2x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of CA$21.81, the analyst's price target of CA$24.74 is 11.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.