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• BCE 100% Rate It
• SJR 0% Rate It
• TU 100% Rate It

We are upgrading our recommendation to Neutral on Shaw Communications Inc. ( SJR ) following its third quarter of fiscal 2012 financial results, which outpaced the Zacks Consensus Estimates. The company continues to lose its cable TV customers, indicating that management is yet to make a turnaround. Since the company already abandoned its wireless initiatives, it is an utmost necessity for Shaw Communications to execute its video offerings properly in order to sustain future growth. Furthermore, the Media segment is facing continued softness of the Canadian advertisement market.

Earlier, the company reduced its previous outlook for fiscal 2012. Nevertheless, in the last quarter, the company markedly improved its EBITDA margin and free cash flow due to the discontinuation of promotional activities. Beside, the stock price has decreased nearly 17% in the last year and it is fairly valued at current level.  

In the previous quarter, Shaw Communications performed impressively with respect to net customer additions on several fronts. The company added 246 digital TV customers. Digital TV penetration rate is now 6.1% of basic cable TV. Furthermore, Digital phone lines were 1,339,559, reflecting a year-over-year net addition of 29,142. Quarterly EBITDA margin was 47.5% compared with 43.8% in the prior-year quarter.

Shaw Communications offers triple-play cable TV and satellite TV, Internet, and wireline phone services, whereas its main competitor Telus Corp. ( TU ) offers Cable TV, Internet, wireline, and wireless services. Telus shares a national wireless network with Bell Canada, a division of  BCE Inc. ( BCE ). Its popular Optik TV, offering IPTV services, is quickly eroding Shaw's market share. In addition, Shaw Communications lacks a major competitive weapon, which is the wireless service. 

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