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This earnings season has been a minefield, with fewer than half of the companies in the S&P/TSX composite index that have reported posting better-than-expected earnings. One bright spot, so far, is the telecom sector.

While just two telecom companies in the S&P/TSX composite index have reported both have reported better-than-expected earnings. At the end of July, Rogers Communications Inc. reported second-quarter earnings per share of 80 cents, beating the consensus estimate by 2 cents. The stock jumped 4 per cent on the better-than-expected financial results. As well, Manitoba Telecom Services Inc. reported adjusted earnings per share of 31 cents, beating the consensus estimate of 27 cents, and the stock rose 3 per cent. Telus Corp. is set to report second quarter earnings on Friday before the market opens, and if we see a similar beat and jump in the stock price for the company, investors may want to take partial profits off the table as the valuation is getting stretched.

The company

Telus is one of Canada's largest telecommunications companies, alongside BCE Inc. and Rogers.

A solid, steady operator – that is how I would describe Telus. In May, the company reported first-quarter earnings per share of 68 cents, above the consensus estimate of 67 cents, and the stock price advanced 2 per cent.

First-quarter wireless revenues increased 7.5 per cent year-over-year to $1.672-billion. Wireless blended average revenue per subscriber unit per month was $62.34, up 3 per cent from the prior year. The increase resulted from higher-priced two-year plans, an increase in data usage, and an increase in postpaid subscribers. Telus's wireless postpaid subscriber base increased to 86.2 per cent from 84.6 per cent last year. The company's postpaid subscriber churn rate, or customer loss rate, was 0.91 per cent, representing the lowest rate in the industry and the seventh consecutive quarter with a churn rate below 1 per cent.

Meanwhile, wireline revenues increased 1.2 per cent year-over-year to $1.356-billion with growth from the Internet and TV services.

Management targets 2015 revenues of between $12.35-billion and $12.55-billion, implying growth of between 3 per cent and 5 per cent, and basic earnings per share of between $2.40 and $2.60, an increase of between 4 per cent and 13 per cent.

Valuation

The stock's valuation is peaking. The stock's multiple has some room to expand, but it's limited. The stock is trading at an enterprise value to EBITDA multiple of 7.8 times the 2016 consensus estimate, just above its three year average of 7.1 times. (EBITDA represents earnings before interest, taxes, depreciation and amortization.) The company's valuation has peaked at a multiple of eight times.

Dividend

Management remains committed to returning capital to its shareholders. Management announced a dividend increase in May, raising the quarterly payout to 42 cents per share from 40 cents; this was the ninth dividend increase since May, 2011. This stock has an attractive yield of 3.8 per cent.

Management has also been active in its 2015 share buyback program, purchasing approximately 7.1 million shares at an average price of $40.86 as of April 30.

Chart watch

The stock has been in a steady uptrend since 2010. Year-to-date, the stock price is up a respectable 6 per cent, outperforming its peers Rogers and BCE, which are up by less than 2 per cent. Telus has also outperformed the S&P/TSX composite index, which is down approximately 1 per cent.

Technically, there is support at $43, near its 50-day moving average and $42.45, near its 200-day moving average, and resistance at $45, its record high set on July 17.

The stock closed Wednesday at $44.52, up 37 cents.

Analysts' recommendations

There are 14 analysts with "buy" recommendations, seven analysts with "hold" recommendations, and there are no "sell" recommendations. Analysts are expecting earnings per share of $2.59 in 2015, growing 8 per cent to $2.80 in 2016. The average one-year price target is $45.78.

The bottom line

Of the three telecom stocks, Telus is my top pick. However, on a valuation basis, the stock just isn't that compelling at current levels. The upside, I believe, is limited. In addition, with recent regulatory changes, the company may incur higher subscriber acquisition and retention costs as customers under legacy three-year contracts can switch carriers without incurring any cancellations fees. That being said, the downside, is also limited to the low $40 range, where I would recommend buying the stock. Telus is a defensive stock relative to the market, given its attractive dividend yield, and represents a strong core holding within a diversified portfolio.

Jennifer Dowty, CFA, Globe Investor's in-house equities analyst, writes exclusively for our subscribers at Inside the Market. E-mail any stock suggestions that you want profiled to jdowty@globeandmail.com