What is T.TO's Intrinsic value?

Telus Corp (T.TO) Intrinsic Value Analysis

Executive Summary

As of June 18, 2025, Telus Corp's estimated intrinsic value ranges from $17.21 to $39.73 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $27.27 +24.4%
Discounted Cash Flow (5Y) $20.77 -5.2%
Dividend Discount Model (Multi-Stage) $17.21 -21.4%
Dividend Discount Model (Stable) $23.77 +8.5%
Earnings Power Value $39.73 +81.3%

Is Telus Corp (T.TO) undervalued or overvalued?

With the current market price at $21.91, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Telus Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.34 0.4
Cost of equity 4.9% 6.6%
Cost of debt 4.3% 6.8%
Tax rate 24.7% 25.7%
Debt/Equity ratio 0.9 0.9
After-tax WACC 4.1% 5.8%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 5.0% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $20,139 (FY12-2024) to $34,930 (FY12-2034)
  • Net profit margin expansion from 5% to 5%
  • Capital expenditures maintained at approximately 24% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $21 $60,482M 87.3%
10-Year Growth $27 $70,321M 76.7%
5-Year EBITDA $12 $47,347M 83.7%
10-Year EBITDA $19 $57,756M 71.7%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 135.2%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 5.7%
  • Long-term growth rate: 2.0%
  • Fair value: $17.21 (-21.4% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 6.6% (Low) to 4.9% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $10 to $38
  • Selected fair value: $23.77 (8.5% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $4,294M
Discount Rate (WACC) 5.8% - 4.1%
Enterprise Value $73,493M - $104,897M
Net Debt $29,035M
Equity Value $44,458M - $75,862M
Outstanding Shares 1,514M
Fair Value $29 - $50
Selected Fair Value $39.73

Key Financial Metrics

Metric Value
Market Capitalization $33175M
Enterprise Value $62210M
Trailing P/E 27.95
Forward P/E 35.15
Trailing EV/EBITDA 5.85
Current Dividend Yield 483.57%
Dividend Growth Rate (5Y) 13.84%
Debt-to-Equity Ratio 0.90

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $8.18
Discounted Cash Flow (5Y) 25% $5.19
Dividend Discount Model (Multi-Stage) 20% $3.44
Dividend Discount Model (Stable) 15% $3.57
Earnings Power Value 10% $3.97
Weighted Average 100% $24.35

Investment Conclusion

Based on our comprehensive valuation analysis, Telus Corp's weighted average intrinsic value is $24.35, which is approximately 11.2% above the current market price of $21.91.

Key investment considerations:

  • Strong projected earnings growth (5% to 5% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 13.84%

Given these factors, we believe Telus Corp is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.