Is A Beat In Store For TELUS (TU) This Earnings Season?

TELUS Corp. (NYSE:TU) is slated to report third-quarter 2017 results on Nov 9.

The leading Canadian telecom operator displays a negative earnings surprise history. The company’s earnings lagged the Zacks Consensus Estimate in three of the previous four quarters, with an average miss of 4.06%.

Let’s see how things are shaping up for this announcement.

Why Do We Expect a Positive Surprise?

Our proven model shows that TELUS is likely to beat estimates because it has the right combination of the two key elements.

Zacks ESP: TELUS has an Earnings ESP of +1.80%. This is because the Most Accurate estimate is 54 cents, while the Zacks Consensus Estimate is pegged at 53 cents. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with ourEarnings ESP Filter.

Zacks Rank: TELUS currently has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. The combination of the company’s favorable Zacks Rank and positive ESP makes us confident of an earnings beat.

Meanwhile, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

What is Driving the Better-Than-Expected Earnings?

TELUS’ price performance has been impressive in the last three months. The company’s shares have returned 2% as against the industry's decline of 5.9%.

Moreover, TELUS continues to benefit from increased penetration of smartphones, higher average revenue per unit, accelerating wireless data services and growing wireline fiber optic networks. The company has consolidated its foothold in the Internet of Things (IoT) market and is focusing on its PureFibre network business. The buyout of Voxpro will expand the company’s domestic foothold. This acquisition raises optimism on TELUS’ revenue growth. The company is likely to attract more clients for its widespread, improved and dedicated services.

In second-quarter 2017, TELUS’ total revenues were approximately $2,433.6 million, up 3.9% year over year. However, GAAP net income was around $282 million, down 7.2% year over year.

Moreover, the company’s Wireless revenues increased 5% year over year to approximately $1,380.7 million. Net wireless subscriber gain in the reported quarter was 83,000. Postpaid customer net addition was 99,000. Prepaid customer net loss was 16,000. The company’s Wireline revenues increased 2.5% year over year to approximately $1,099.6 million. During the reported quarter, TELUS added 5,000 TV subscribers and 17,000 high-speed Internet subscribers. We expect this revenue growth and customer addition momentum to continue in the to-be reported quarter.

On the flip side, TELUS has been facing fierce competition in the wireless and wireline segment. In the wireless segment, it competes against the likes of Rogers Communications Inc. (NYSE:RCI) and BCE Inc.’s (TO:BCE) subsidiary, Bell Canada, followed by threats from small regional carriers like MTS in Manitoba and SaskTel in Saskatchewan. The wireline segment is threatened by cable-TV operators such as Shaw Communications.

Key Pick

Here is a company in the broader Utilities sector, which houses TELUS, that has the right components to deliver an earnings beat this quarter.

Shenandoah Telecommunications Co. (NASDAQ:SHEN) has an earnings ESP of +25.00% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

It is expected to release fourth-quarter results on Mar 19. The company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 271.73%.

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