On May 7, 2014, we issued an updated research report on
Rogers Communications Inc.
Rogers has delivered negative earnings surprise in all four
quarters last year, with an average surprise of negative 6.74%. The
company reported weak first-quarter 2014 financial results, where
its bottom line missed the Zacks Consensus Estimate.
Despite significant LTE network expansion, innovative service
launches and an attractive dividend yield, Rogers' Cable operations
are currently facing severe competition.
) entry into cable TV services is imposing competitive pressure,
and may likely slash Rogers' market share and impede cap margin
Rogers' Media segment was affected by continued softness in the
advertising market. We believe that much of the Media segment's
growth is dependent on the strong viewership ratings of Rogers'
radio and TV broadcasting operations. To remain competitive, the
company needs to heavily invest in new TV programs and channels.
This may result in considerable cash drain from Rogers' balance
Canadian regulatory authorities concluded that Canada's wireless
market lacks competition. The government asserted that having just
three carriers on an average per market has stifled competition,
thereby resulting in higher rates and lower penetration than many
In a bid to improve service and price through competition, the
Canadian federal government has licensed four new operators.
Through spectrum auction, five new entrants gained substantial
regional holdings of AWS spectrum. These new participants are
expected to intensify competition for the company by either teaming
up with Rogers' rivals.
Rogers has a highly leveraged balance sheet with a
debt-to-capitalization ratio of 0.73. Senior notes totaling nearly
$1.8 billion are scheduled to mature in the next two years and will
further pressurize cash flow. Furthermore, increased dividend
payment, an aggressive stock buy-back plan and deployment of 4G LTE
across its footprints should further dent Rogers' cash balance, in
our view. We also believe that Rogers is fairly valued at the
current level and the stock price is not expected to provide
above-market gain anytime soon.
Moreover, weaker smartphone activations in the first quarter of
2014 and stiff competition from local players like
Shaw Communications Inc.
) will continue to act as headwinds for the company while moving
Rogers currently carries a Zacks Rank #5 (Strong Sell).
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