Desjardins Canadian telecom stocks “represent a good place to hide amid the uncertainty” brought on by the Omicron variant of COVID-19, according to Desjardins Securities analyst Jerome Dubreuil, emphasizing their “relatively stable” results through previous waves of the pandemic.
In a research report previewing fourth-quarter earnings season in the sector, which commences later this week, he did warn that the pandemic could have a “noticeable” effect on the ranges of 2022 guidance announced in the sector. That led him to reduce his target prices for companies in his coverage universe after he increased his risk-free rate assumption to “reflect the current rate environment.”
“We are expecting a healthy wireless market once again this quarter, but growth in wireless net additions could start decelerating,” said Mr. Dubreuil. “We believe that inventory constraints have helped keep promotional activity for devices in check, which should support wireless profitability. We do not expect significant changes in wireline trends in 4Q, but we did reduce our wireline estimates for 2022 to better reflect the return of certain costs amid the reopening.”
“We expect BCE, RCI and T to unveil 2022 guidance when they report 4Q results. We expect 2022 adjusted EBITDA growth of 4.8 per cent for BCE, 9.2 per cent for RCI and 9.8 per cent for T. We believe the difference between BCE and RCI/T is not only due to the reopening, but we also forecast faster growth for RCI and T in 2023.”
He maintained these targets:
* Telus Corp. ( “buy”) at $33. Average: $31.75.
Analyst: “T delivered the second best share price performance within our coverage universe in 2021 (trailing only BCE) and is our best idea for 2022. Management stated in November that it expects 4Q EBITDA growth to be similar to the 7.1 per cent reported in 3Q. While it is unlikely that the Omicron surge was expected at the time of that forecast, the implementation of pandemic-related restrictions came only during the last two weeks of 4Q and, therefore, we believe T will be able to hit its expected growth target. Our EBITDA growth forecast stands at 7.0 per cent, lower than consensus of 7.8 per cent. Note that we have adjusted our estimates for the sale of the company’s Financial Solutions business to Dye & Durham (DND-T, not rated) for $500-million.”