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Why Telus is a smart buy for investors

It's facing stiff competition from Shaw, and the Alberta economy has tanked, but the wireless provider has a history of success in the face of adversity

Top 1000 Rank #31 | 2016 Revenue $12.8 billion | 2016 Profit $1.2 billion

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When Darren Entwistle addresses shareholders and employees at annual meetings, he sounds like the leader of a small country. He speaks of winning the "hearts and minds" of customers, and while his speeches are grounded in litanies of figures, he can succumb to ambiguous bombast. "Daring to be different remains our greatest asset, as evidenced by both our industry-leading results and the humanity of our community giving," the CEO proclaimed at this year's meeting in May.

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In fairness, Entwistle can boast of many strengths at Telus. Profit and revenue are growing in both wireless and the so-called wireline division, which encompasses all the services delivered via wired networks: landline phone, TV, Internet and the health-records business. The Vancouver-based telecom also paid out $1.1 billion in dividends in 2016. But for some time now, investors have seemed unmoved, with the company's shares trading at a discount to its biggest competitors, Rogers and Bell.

There are several reasons for the muted market sentiment. Over the past couple of years, Shaw—Telus's plodding cable rival in the West—suddenly became a bigger threat when it shed its broadcast-media assets and got into the wireless business with the purchase of Wind Mobile. Shaw then rebranded the carrier as Freedom Mobile and brought LTE (fourth-generation) cellular service to key markets such as Toronto and Vancouver. It has also launched a new premium television platform that competes with Telus's TV business. Another concern for investors is the Alberta economy—a key market for Telus that was hit hard by the oil and gas downturn.

Still, Telus has a history of success in the face of adversity. Veritas Investment Research analyst Desmond Lau, who changed his rating on Telus from "sell" to "buy" in mid-May, points to the company's effective response to increased wireless competition in Quebec. After Vidéotron launched wireless service in 2010, he says, Telus actually increased its market share in the province, while Bell and Rogers both lost ground. "That example speaks to Telus's good management and customer service, which allows them to weather the storm during these negative times," Lau says.
Additionally, the company has skated through the economic downturn in Alberta relatively unscathed, maintaining growth in wireless revenue and earnings despite high unemployment in the province. "Telus's execution, despite the still modest conditions in Alberta, deserves to be called out," says Canaccord Genuity analyst Aravinda Galappatthige.

Finally, the billions of dollars Telus has spent on extending its fibre-optic service may soon start to pay off. Lau estimates the company will bring fibre directly to customers' homes in 41% of its service area by year-end, compared to 32% for rival Bell, which is making similar investments. That means Telus will be in a position to "harvest" while Bell is still "sowing," he says. Combined with its other strengths, Lau adds, Telus's lead on fibre deployment makes it a smart investment.

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