On Friday, shares of the TSX-listed subsidiary of Telus Corp. (T-T) slid 5.2 per cent despite reporting revenue of US$663-million, up 7.8 per cent year-over-year and above both Mr. Potter’s US$657-million estimate and the consensus forecast of US$658-million. Adjusted earnings per share of 21 US cents fell in line with expectations.
Telus International also maintained its 2023 outlook, including revenue of U$2.70-US$2.73-billion, 1-2-per-cent organic growth and adjusted EPS of 90-97 US cents.
“Our revenue estimates increase in 2023 due to the quarter beat and decrease in 2024-25 due to continued macro-related headwinds,” he said. “Our margin estimates increase in 2023 due to the quarter beat and remain relatively unchanged in 2024-25 as we balance cost savings actions against wage pressure. We make slight adjustments to other line item estimates that results in our EBITDA and EPS estimates increasing in 2023 and decreasing in 2024-25.”
With those reduced forward estimates, he lowered his target for its shares to US$7 from US$8, keeping a “neutral” recommendation. The average is US$10.67.
“TELUS International has done a good job pivoting its business mix toward faster growth opportunities through its focus on high-growth clients in its traditional digital customer experience business and successfully leveraging M&A to expand into fast-growing adjacencies such as content moderation, AI data solutions, and digital transformation services,” said Mr. Potter. “In an uncertain and volatile macro though, risks around the company’s perceived visibility, its industry and client concentration, and potential volume volatility tied to economic cycles become more apparent. Other risks to consider include geopolitical risks and its status as a controlled company. We believe the current valuation reflects a balanced risk/reward given these items and justifies a Neutral rating.”
Other analysts making target changes include:
* RBC’s Daniel Perlin to US$11 from US$14 with a “market perform” rating.
“While it’s #3 client continues to pull back on spending and thus weighing on aggregate results, FY23 revenue guidance (at the mid-point) does imply some expected sequential improvement in 4Q23, as Telus Corp and Google appear to be gaining momentum and thus should see tech & gaming as a vertical be a key contributor in 4Q23 revenue growth (we are modeling 3-per-cent organic vs. up 1 per cent in 3Q23),” said Mr. Perlin. “Overall, the macro backdrop remains challenging, thus elongated cycles persist, setting up for a more conservative FY24.”
* TD Securities’ Daniel Chan to US$10.50 from US$12 with a “buy” rating.
* BMO’s Tim Casey to $8 from $11 with an “outperform” rating.
* JP Morgan’s to US$8 from US$12 with a “neutral” rating.