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Rogers Communications Strong on Wireless, Risks Prevail

On Nov 16, 2015, we issued an updated research report on Canada's largest cable MSO and wireless operator - Rogers Communications Inc.RCI .

The company reported impressive third-quarter 2015 financial results, wherein both the top and the bottom line steered past the Zacks Consensus Estimate.

Notably, Rogers Communications' wireless operations accounted for nearly 58.30% of the company's total revenue in the third quarter of 2015. In the said quarter, postpaid retail subscribers totaled 8.240 million, up 1.3% year over year. Moreover, in the reported quarter, the company witnessed a higher number of smartphone activations. Smartphone customers constituted a record 88% of the overall postpaid subscriber base.

Interestingly, in a bid to step up Internet speed to 1 Gbps (gigabit-per-second) for 4 million Toronto residents, Rogers Communications plans to roll out its Ignite Gigabit Internet service across its entire cable footprint in Ontario and Atlantic Canada by the end of 2016. By aiding Rogers Communications in delivering faster speeds in Canada, we believe this latest service should somewhat strengthen the company's competitive position against arch rival BCE Inc. BCE .

Meanwhile, Rogers Communications continues to roll out 700 MHz LTE 'lower block' spectrum which provides better in-building penetration and rural LTE coverage. At present, the spectrum coverage stands at 71% of Canada's population. Rogers also activated the AWS-1 spectrum in January this year, and continues to enhance its LTE capacity and speed.

The company launched 4K TV and 4K set-top box which will broadcast over 100 live sporting events in 4K. With a 4K-ready gigabit Internet speed, a 4K set-top box and 4K TV, the launch is touted as the next big innovation in home entertainment. In addition to this, Rogers Communications has the world's largest sport broadcasting commitment in 4K quality. We believe these initiatives will drive the company's revenues, going forward.

Moreover, significant LTE network expansion, innovative service launches, improved postpaid ARPU, strong cable subscriber growth and major contract wins add to the optimism.

However, Rogers Communications has a highly leveraged balance sheet with a debt-to-capitalization ratio of 0.73 at the end of third-quarter 2015 in comparison with 0.72 at 2014-end. Moreover, senior notes totaling nearly $1.8 billion are scheduled to mature in the next two years and will further pressurize cash flow.

Rogers Communications currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Salem Media Group, Inc. SALM and Sinclair Broadcast Group, Inc. SBGI . Both the stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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