Telus: Expect Dividend Growth and Buyback Opportunities in 2008

Telus Corp.'s (TU) 2008 free cash flow outlook appears to leave room for significant dividend growth and continued share buybacks over the next few years, according to UBS analyst Jeffrey Fan.

"We estimate Telus can grow dividends at a compound annual growth rate of 13% and buy back approximately C$2-billion of shares between 2008 and 2011, Mr. Fan said after Telus management outlined free cash flow details in the range of C$1.4 to C$1.55-billion in 2008.

The analyst also acknowledged the company's more-than-20% stock decline since the beginning of November, by saying the concerns regarding the company's growth outlook and increased wireless competiton have already been priced in to the valuation.

He maintained his "buy" rating on the shares but reduced his price target from C$58 to C$49 to reflect the telco's lower growth profile.

Over at Canaccord Adams, analyst David Lambert was focused on the company's growth forecast which fell mainly in line with his estimates.

In a research note, Mr. Lambert wrote,

One of the drivers of this expected growth comes from increased spending on broadband networks, which could help grow the company’s lagging market share of residential broadband customers and drive increased enterprise broadband revenues.

He added that Telus Mobility is expected to be the other growth driver as the company expects 450,000 net new subscribers could drive estimated 2008 wireless revenue growth of 9% to 11% and EBITDA growth of 7% to 11%.

The analyst also told clients that Telus blamed its higher-than-expected C$1.9 billion 2008 capital expenditure estimate on recently awarded large government contracts. The company said network builds associated with the contracts lag the corresponding revenues.

Mr. Lambert upgraded his recommendation on Telus shares to "buy," but reduced his price target from C$55 to C$53.