Rogers Communications has 21 per cent upside, Echelon Wealth says

Looking at Rogers Communications’ (TSX:RCI.B, NYSE:RCI) just-released quarterly results, analyst Rob Goff of Echelon Wealth Partners says the company stands as more proof that it deserves top rank among Canada’s telcos. In a client update on Thursday, Goff reiterated his “Buy” recommendation for Rogers, with a raised target price of $76.00.

For the quarter ended June 30, 2018, Rogers posted adjusted EBITDA of $1,504 million, an 8.3 per cent year-over-year increase and $31 million above the consensus expectation. The company’s total revenue was $3,756 million, up four per cent from the same time last year, while its earnings per share increased by two percentage points to $1.04 per share.

Rogers added 122,000 wireless customers in its Q2, handily beating the Street expectation of 90,000 adds. Goff notes that Rogers had its lowest wireless churn rate in nine years and its highest Q2 broadband loading numbers since 2005. Moreover, he says that the subscriber adds show that Rogers’ share of Canada’s wireless pie hasn’t been too affected by the penetration of Shaw Communications’ low-cost Freedom Mobile into the Canadian market.

“We believe the solid financials together with subscriber outperformance should be positively received,” says the analyst in a client update on Thursday. “In particular, the strength of wireless gross and net subscribers reflect solid market conditions and address concerns that Freedom’s outperformance would negatively impact the larger players. We look for the strength of Q218 subscriber adds to refuel discussion of market stimulation.”

“With our large capitalization coverage names relatively clustered on valuations, we focus on asset mix, financial momentum and competitive dynamics. These considerations have supported our top ranking on for Rogers given its asset mix and financial momentum,” he writes. “We are encouraged to note that RCI.B shares have gained 4.1 per cent for the YTD, outperforming TELUS (T-T, $47.90, Buy, PT $52) at 0.6 per cent, Shaw (SJR.B-T, $27.05, Buy, PT $31.00) at -5.7 per cent and BCE (BCE-T, $55.65, Buy, PT $62) at -7.8 per cent. With our $4 PT increase, we are keeping RCI as our top rated large capitalization telecom stock.”

Goff’s new $76.00 target (was $74.00) is based on his 8.6x/7.9x 2017/2018 EV/EBITDA estimates and represents a projected return of 17 per cent at the time of publication