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Neutral Stance on Rogers - Analyst Blog

Posted
9/27/2013 4:10:00 PM
By: Zacks.com
Referenced Stocks:BCE;RCI;S;TU

On Sep 27, we maintained our Neutral recommendation on Rogers Communications Inc. ( RCI ). In the recently concluded second quarter, the company's bottom line missed the Zacks Consensus Estimate but the top line outpaced the same.

Why Maintained?

Rogers was the first company in Canada to launch LTE (Long Term Evolution) network. Initially, the company deployed LTE network in 90 cities of Canada, covering over 60% of Rogers' footprint. The company also offered a variety of LTE-enabled smartphones. Further, the company teamed up with a Hong Kong-based carrier to offer the first LTE roaming service to its subscribers in Hong Kong and also joined forces with Swisscom AG to offer roaming service to subscribers traveling to Switzerland.

Rogers received CRTC's approval to gain complete control over sports television network - Score Media Inc. - Canada's third-largest specialty sports channel. The Score Media Inc. acquisition will provide Rogers the right to access television assets of the Score Television Network along with an additional 6.6 million television subscribers, thereby driving revenues. Moreover, the company plans to acquire Pivot Data Centres Inc. from private equity firm, Sverica International, for approximately $150.7 million. Earlier, it bought BLACKIRON Data from Primus Telecommunications Group for $200 million.

Rogers also received an authorization from the Office of the Superintendent of Financial Institutions of Canada to start credit card service. This facility will be launched in 2014.

Softness in the advertising market due to the lack of investment in TV content may hurt profitability in the near future. The increased competition in the cable TV business after BCE Inc. entered the Canadian market could also add to the woes. Moreover, the Canadian regulatory authority's decision to grant licenses to four new operators in order to improve national wireless service, subsequently increasing competition in the Canadian wireless market, may further act as a headwind for Rogers.

Furthermore, the company has a highly leveraged balance sheet with a debt-to-capitalization ratio of 0.71. Hence, we believe that increased dividend payment coupled with an aggressive stock buyback plan and deployment of 4G LTE across its footprints may further exert pressure on Rogers' cash flow, moving ahead, thereby widening its current debt-to-capitalization ratio.

Rogers Communications carries a Zacks Rank #4 (Sell).

Other Stocks Outlook in Related Industries    

Other stocks in this sector like TELUS Corporation ( TU ), Sprint Corp. ( S ) and BCE Inc. ( BCE ) are set to gain from the extensive/increasing LTE deployment in the upcoming days. Currently, all three have a Zacks Rank #3 (Hold).



BCE INC (BCE): Free Stock Analysis Report

ROGERS COMM CLB (RCI): Free Stock Analysis Report

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TELUS CORP (TU): Free Stock Analysis Report

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