Rogers Communications still has upside, says Echelon Wealth

Echelon Wealth Partners analyst Rob Goff thinks Rogers Communications (Rogers Communications Stock Quote, Chart, News: TSX:RCI.B) third quarter 2016 results, due to be released Thursday, will be in-line with the street consensus. But the analyst still believes there is modest double-digit upside to be had in the stock.

In a research update to clients Tuesday, Goff reiterated his “Buy” rating and one-year price target of $60.00 on Rogers Communications, implying a return of 12.4 per cent at the time of publication.

The street consensus for Rogers third quarter has the company posting earnings of $0.88 and EBITDA of $1.37-billion on revenue of $3.44-billion. Goff’s slightly more optimistic take has the company posting earnings of $0.91 and EBITDA of $1.38-billion on the same topline.

Rogers is following on a second quarter in which it posted earnings of $0.77 on revenue of $3.45-billion. CEO Guy Laurence talked about the company’s “Rogers 3.0 strategy“, a plan the company has to improve its customer experience, introduce new technologies, reclaim its leadership role in the cable business and maintain its lead in wireless.

“We posted strong results in the second quarter, delivering solid revenue growth whilst attracting more customers across our Wireless and Internet businesses,” said Laurence. “We continued to make meaningful improvements to the customer experience, delivering our third straight quarter of Wireless postpaid churn improvement. We expanded our roaming leadership with the launch of Fido Roam, continued the rollout of our Gigabit Internet service to almost half our cable footprint, and introduced two innovative leapfrog solutions to Canadian businesses. Overall, we’re making good headway on our Rogers 3.0 strategy.”

Goff says that, as with any of the big Canadian telcos, Rogers’ quarter will be charazterized by the push and pull of headwwinds and tailwinds.

“We look for forecasts largely in line with expectations and YTD trending,” says the analyst. “Within the results, investors are likely to focus on indications of moves in competitive intensity and the backdrop of sector strength – aka. tailwinds. We are modestly cautious that the overall strength of wireless seen in Q216 will have moderated in Q316 with some activity about the iPhone7 moved onto Q416. Arguably, the full measure of performance across the peers will await all results being released to allow investors to gauge the sector tailwinds.”

Goff believes Rogers will earn $2.95 a share in 2016 while posting EBITDA of $5.10-billion on revenue of $13.67-billion. The analyst says investors will be looking for color on some key initiatives.

“Investors will look for updates on the wired/cable product roadmap ahead of the initial IPTV launch (expected by end of Q416 – although CEO Guy Laurence has stated an introduction could be moved into 2017 where needed to ensure a launch with a secure showing),” he says. “The DOCSIS 3.1 enabled 1+Gig service is expected to continue unabated.”

At press time, shares of Rogers Communications were down 0.4 per cent to $55.17.