S&P Cuts Telus Outlook to Stable on Weaker Guidance, Higher Leverage Forecast

S&P Global Ratings on Monday revised its outlook for Telus Corp. (NYSE: TU) to "Stable" from "Positive," signaling a lower likelihood of a credit rating upgrade in the near term. The change follows revised financial guidance from the telecommunications company that points to higher-than-expected leverage, though S&P affirmed its "BBB-" issuer credit rating.

Weaker Guidance Drives Revision

The primary driver for the outlook change was a downward revision of Telus's 2026 performance targets by its new management. According to the rating agency, the Vancouver-based operator now anticipates:

• Revenue to be flat to down 2%
• EBITDA to decline by 2% to 4%
• Capital expenditures to rise to C$2.6 billion
• Free operating cash flow to fall substantially to approximately C$1.8 billion

As a result of this weaker forecast, S&P now projects Telus's leverage, measured as debt-to-EBITDA, will be approximately 4.0x at the end of 2026 and 3.8x in 2027. This is an increase from its previous forecast of 3.75x for 2026.

Deleveraging Timeline Extended

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In response to what it sees as intensifying competition in the mature Canadian telecom market, S&P has tightened its leverage threshold for a potential downgrade to 4.0x. The agency noted that competitive pressures are weighing on the growth prospects and business risk profiles of incumbent carriers.

Coinciding with the revised guidance, Telus's new CEO has pushed back the company's timeline for achieving a target leverage ratio of 3.0x to 2028, from the previous goal of 2027. The company also cut its dividend by 55%, though S&P noted the cash savings are partially offset by the elimination of the discount on its dividend reinvestment plan (DRIP).

Industry Headwinds and Rating Triggers

S&P Global Ratings projects a period of sluggish growth for the Canadian wireless sector, with service revenue expected to increase by only 1.5% to 2.0% annually between 2026 and 2028, a significant slowdown from historical rates of 4% to 5%. The agency attributes this to slower subscriber growth and pressure on average revenue per user (ARPU).

The rating agency stated it could lower Telus's credit rating if its adjusted debt-to-EBITDA ratio sustainably exceeds 4.0x. Conversely, while an upgrade is considered unlikely in the next 24 months, it could be possible if Telus successfully reduces its debt and brings its leverage ratio back to 3.5x or below.