Shaw Communications is a buy, Echelon Wealth says

Higher-than-expected subscriptions for its wireless services produces added momentum for Shaw Communications (Shaw Communications Stock Quote, Chart, News: TSX:SJR.B), say analyst Rob Goff of Echelon Wealth Partners, who on Thursday reiterated his “Buy” recommendation and $31.00 per share price target for Shaw.

Shaw posted 93,500 new wireless subscribers over the quarter ended February 28, the company reported on Thursday, more than doubling the expected additions. Goff says the gains along with record low subscriber de-activations make the investor’s choice between Shaw and competitor Rogers Communications (TSX:RCL.B) more difficult.

“Across [Shaw’s] peers, we have ranked Rogers (RCI.B-T, $56.65, BUY, PT $72) as our top recommendation,” says the analyst in a client update. “However, the momentum at Freedom on the quarter and greater evidence/confidence that financial momentum will build in FQ418+ leaves little to choose between the two leaders.”

The analyst has left his forecast for Shaw relatively unchanged, as he awaits further details on the company’s voluntary departure program, which will involve roughly 3,300 employees.

“Our full year F2018 forecast revenue/EBITDA of $5,243 million/$2,046 million reflects revenues roughly $140 million above the consensus, while our EBITDA is a modest $9 million below consensus. Our implied y/y revenue/EBITDA growth of 7.4 per cent/2.5 per cent aligns with EBITDA guidance of ~$2.1 billion. The growth implied by the FQ418 forecasts should be considered with the context that FQ417 EBITDA was down 8.6 per cent or $42 million y/y as Shaw prioritized subscriber growth at the expense of near term financials,” Goff says.

“Thus, the company’s pivot following its FQ417 results has an imbedded y/y associated with lower promotions,” he says. “The announced voluntary rationalization program increases our confidence in our F2018 forecasts. The program is expected to gain greater efficiency gains in F2019. Our F2019 Revenue/EBITDA is at $5,490 million/$2,265 million, largely in line with consensus, although, recognizing the potential for upside to our 4.7 per cent y/y growth with the announcements.”

The analyst’s $31.00 target price represents a projected return of 24 per cent at the time of publication.