Rogers Communications has a 28 per cent upside, says Echelon Wealth

With solid financials and subscriber gains that beat expectations, Rogers Communications’ (Rogers Communications Stock Quote, Chart, News: TSX:RCI.B) newly released first quarter results are a cause for a revised forecast but not enough to move the target price, says analyst Rob Goff of Echelon Wealth Partners, who on Thursday maintained his “Buy” recommendation and $72.00 target.

Yesterday, Rogers released its Q1/18 financials, reporting revenue and EBITDA OF $3,633 million and $1.281 million, respectively, beating Goff’s estimates by $29 million and $74 million, respectively, and the consensus forecast by $165 million and $50 million, respectively.

The company added 95,000 new mobile customers on contract in Q1, which is up from the 72,000 added the previous quarter and far above the consensus forecast of 58,000.

“We delivered another strong quarter with really solid financial and operating results led by our largest segment, wireless,” said Joe Natale, President and Chief Executive Officer, in a press release. “Our team delivered on all key Wireless metrics, growing subscribers, revenue, and adjusted EBITDA, while continuing to reduce customer churn. In Cable, we grew revenue and margins driven by our competitive advantage in Internet. At the same time, we continue to make great progress on our key long-term plan to improve the customer experience and drive margin improvements and sustainable growth.”

Goff says the subscription gains should alleviate fears related to Shaw Communication’s attempts to take more of the wireless pie from the Canada’s big three telco’s through its discount carrier Freedom Mobile.

“We believe the solid financials together with subscriber outperformance should be positively received,” says the analyst in a research update to clients. “In particular, the strength of wireless gross and net subscribers should reflect solid market conditions, and address concerns that Freedom’s outperformance would negatively impact the larger players. Rogers announced opportunistic normal-course issuer bid and solid deleveraging raise the prospects of a return to dividend growth.”

“Our $72 Rogers price target reflects 9.0x 2018 EV/EBITDA against the current valuation of 8.0x 2017 EV/EBITDA,” says the analyst. “We continue to temper our price targets on the large caps within our coverage considering the rising government bonds for the YTD. The telecom services index outperformed the broader market in six of the seven years when rates declined in the past decade and underperformed during the three years that rates increased. Our 2018 EBITDA upgrade excluding the MLB would equate to roughly $0.80 per share. With aggressive forecast returns to our PT and perhaps buffering against higher rates, we held back on a modest price target raise.”

Goff says that given Rogers’ relative valuation, wireless exposure and competitive balance, the stock has his preference over Telus and BCE. The analyst predicts 2018 revenue and EBITDA for Rogers of $14,882 million (was $15,577 million) and $5,676 million (was $5,608 million), respectively.

His $72.00 target represents a projected return of 28 per cent at the time of publication.