Shaw Communications is a buy, says Canaccord Genuity

Ahead of its Q3 FY18 earnings on Thursday, analyst Aravinda Galappatthige with Canaccord Genuity is expecting Shaw Communications (Shaw Communications Stock Quote, Chart, News: TSX:SJR.B, NYSE:SJR) to have an upswing in profits and to more than double last year’s third quarter wireless subscriber additions.

The analyst’s client update Monday maintained his “Buy” rating and $28.50 price target for Shaw.

Galappatthige predicts that the telecom company should generate EBITDA of $556 million for the quarter, up 8.7 per cent year over year (consensus of $543 million), with a significant increase in capital expenditures due to wireless investments ($365 million versus $290 million in Q3 FY17).

On the cable subscription front, the analyst has modest expectations, coming in at a net loss of 900,000 subscribers (consensus negative 590,000), whereas for wireless adds, Shaw should follow up a rosy Q2 with more positive momentum, says Galappatthige.

“We expect the street will focus on wireless subs, particularly following the stellar result in Q2. In Q3 we forecast continued positive momentum with 50.0k net adds (consensus 46.3k) versus 20.0k in Q3/F17, driven by strong uptake of its new $50/$60 ‘Big Gig’ plans, which we now understand have reached 20 per cent of the base,” he says.

“We think that a result in the 65-70k range in this seasonally quieter quarter would potentially boost the stock and drive expectations of near 300k net adds post F2018, versus current street expectations of 220-230k,” he says.

On the Thursday morning conference call, Galappatthige says the focus will likely be on wireless momentum, emphasizing continued low churn rate while maintaining or stepping up current take-up rate of the $50/$60 Big Gig plans. As well, the analyst is hoping for any signs of incremental activity on Shaw’s Bring Your Own Device (BYOD) segment, signs of its net adds mix shifting towards the West, the company’s plans vis a vis cable subscriptions as well as an update on the company’s employee voluntary departure program.

For the quarter, the analyst is estimating EBITDA of $556 million on revenue of $1,295 million. His $28.50 target represents a 7.5 per cent 12-month return at the time of publication.