We downgrade the largest telecom operator of Canada,
Rogers Communications Inc. ( RCI ) to
Neutral based on the company's high level of current valuation and
growing competitive threat in the Canadian telecom market.
Why the Downgrade
The stock price of Rogers Communications has moved up nearly 36%
in the last year, significantly outpacing the S&P 500 return of
just 14.4% in the last year. Rogers is currently trading at the
high-end of its 52-week price range. With respect to several
valuation metrics, Rogers is also trading at significantly higher
multiples compared to the S&P 500.
We believe the company is currently fairly valued and the stock
price will not provide above market gain any time soon. Rogers
Communications now has a Zacks #3 Rank (Hold).
Other Causes of Concern
In a bid to improve service and prices through competition, the
Canadian federal government has licensed four new operators in the
wireless market.We believe that these new entrants could give a
tough competition to incumbent Rogers and Bell Canada, a subsidiary
of BCE Inc. ( BCE
Rogers' Cable operations are currently facing increased
competition. Bell Canada's entry into cable TV services is
increasing competitive pressure, and may likely slash Rogers'
market share and cap margin expansion.
Bell Canada is aggressively rolling out IPTV network, resulting
in a loss of about 16,000 video subscribers of Rogers in the third
quarter. In addition, BCE Inc. is offering triple-play services
with highly attractive prices, which is quite popular particularly
among the low-end market segment.
Canadian Telecom Stocks that Warrant a Look
While for the time being, we perfer to be sidelined for Rogers
Communications, other Canadian telecom stocks worth a look are
Shaw Communications Inc. ( SJR ),
BCE Inc. and Telus Corp. ( TU ).
Shaw Communications currently enjoys a Zacks #2 Rank (Buy), whereas
both BCE and Telus have Zacks #3 Rank (Hold).BCE INC (BCE): Free Stock Analysis ReportROGERS COMM CLB (RCI): Free Stock Analysis
ReportSHAW COMMS-CL B (SJR): Free Stock Analysis
ReportTELUS CORP (TU): Free Stock Analysis ReportTo read this article on Zacks.com click here.