America’s Citi Research Gives ‘Buy’ Ratings for Telus and Bell, ‘Neutral’ for Rogers

Analyst Kevin Toomey from Citi Research sees more upside in Canada’s wireless sector versus his fellow American counterparts.

The analyst forecasts Canada’s Big 3 wireless players will see a compound annual revenue growth of roughly 2% versus less than 1% for American wireless carriers. Toomey gave buy ratings on Telus and BCE and a neutral rating for Rogers.

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Reasons why Canada’s market is seen with an upside is based on the following factors: better industry structure, lower cellphone penetration, heavy wireless spectrum holdings, less pressures on wireline revenues, to go with a wealthier growing population, according to the analyst’s research note, reports the National Post:

“Valuations of the Canadian communication stocks have risen over the past month, but we believe there is still room for upside as these Canadian stocks deserve a premium valuation to the broader average of Telco & Cable stocks,”

Canadian wireless firms are trading at future value to operating income before depreciation and amortization (FV/OIBDA) multiples that are higher than U.S. firms, plus telecoms here also have better free cash flow yield.

The analyst singled out Telus as his top pick based on anticipated growth in wireless and wireline margins, and also chose Bell’s parent company BCE as a buy “out of consensus” based on prospects of growing wireless performance and “acquisition-related synergies.” He predicts both companies to have above-average earnings per share for 2015 and 2016.

Last quarter, Telus added 113,000 wireless customers, Bell added 91,000 and Rogers only added 17,000.