Solid third quarter financial results from Rogers Communications (Rogers Communications Stock Quote, Chart: TSX:RCI.B) are a welcome positive but not enough to move the needle for Rob Goff of Echelon Wealth Partners who on Monday maintained his “Buy” recommendation with the reiterated target of $76.00, representing a 16.2 per cent return at the time of publication.
On Friday, Rogers posted its Q3 2018 results, which beat analyst expectations on EBITDA for the quarter at $1.62 billion, a 7.8 per cent year-over-year increase and better than the consensus $1.57 billion. Revenue of $3.77 billion was up three per cent and on target with the Street’s $3.78 billion.
Rogers also raised its financial targets on the basis of its strong results from wireless, which added 124,000 subscribers over the quarter, moving guidance for 2018 EBITDA growth from the five to seven per cent range to the seven to nine per cent range.
Goff says that the Canadian wireless market has consistently outperformed expectations over the past two years, leading credence to the idea that the Canadian market is trending towards narrowing the penetration gap in Canada (around 87 per cent) relative to how it looks in the United States, where penetration is around 120 per cent.
“We maintain our preference for Rogers across our largest capitalization coverage names,” says Goff in an update to clients. “Our ranking of Rogers ahead of its peers has been rewarded by its YTD outperformance at 4.5 per cent which is a considerable gap versus TELUS at negative 3.9 per cent, BCE at negative 11.7 per cent and Shaw at negative 12.4 per cent.”
Rogers Communications Stock Valuation
“At this point RCI/TELUS and BCE are pretty much on par at ~7.5x 2019 EV/EBITDA while Shaw trades at a modest discount with its valuation at 6.6x’s,” says Goff. “We are sticking with Rogers considering its prospects of margin driven forecast upgrades, its broadband/Ignite momentum and asset mix with wireless at 68 per cent of EBITDA.”
“BCE’s underperformance YTD is likely more attributed to rising rates where caution going forward on rates and its asset mix tempers our ranking. We would arguably place Shaw after Rogers and ahead of TELUS given Shaw’s valuation discount and potential to outperform on Freedom,” he says.