Rogers Communications is a buy, says Echelon Wealth

Rogers Communications (Rogers Communications Stock Quote, Chart TSX:RCI.B) posted modest top and bottom line beats in its quarterly financials, leading to a target price raise from analyst Rob Goff of Echelon Wealth Partners who now rates RCI a “Buy” with a $78.00 target (previously $76.00).

Rogers’ fourth quarter fiscal 2018 came with revenue of $3,938 million, a 4.2 per cent year-over-year increase and above consensus expectations of $3,867 million (also above Echelon Wealth’s $3,887 million). EBITDA also produced a beat, coming in at $1,521 million, a 5.9 per cent year-over-year increase and above the Street’s $1,504 million and Goff’s $1,513 million.

Management called the full results for 2018 “terrific,” stating that Rogers’ outlook for 2019 is strong, calling for revenue growth of three to five per cent and EBITDA growth of seven to nine per cent.

“For the full-year 2019, we expect steady growth in revenue and adjusted EBITDA to drive higher free cash flow, despite higher projected capital expenditures. In 2019, we expect to have the financial flexibility to maintain our network advantages, to further reduce debt, and to continue to return cash to shareholders,” reads the press release.

In his client update on Friday, Goff noted that subscriber benchmarks for Q4 were modestly ahead of expectations on wireless, largely in line on wired and marginally ahead on broadband.

“RCI presented broad growth expectations of approximately five per cent for wireless subscribers and two per cent for wired broadband. Comments suggested continued room for modest growth on wireless ABPU/ARPU and wired broadband where the five year ARPU CAGR was given as seven-per-cent-plus and demand/speed availability gains suggest further positive moves. Overall margin gains over the past two years of 210 bps exceeded expectations of 100-200 bps,” Goff writes.

“RCI noted the potential for further gains, albeit, at a moderating rate. Management noted that the growth and flexibility of the company are primary considerations and that share repurchases are likely to be put ahead of moving towards annual increases that could decrease the company’s flexibility. The 4.2 per cent increase in the dividend considered the strength of results and the improved debt:EBITDA at 2.5:1 down from 2.7:1 year-over-year,” he writes.

Comparing the top four telcos in 2019, Goff says that he’s bullish on Rogers, Shaw and Telus but puts Shaw ahead of Rogers (and is predicting that BCE will underperform).

The analyst has made “modest” upward revisions to his 2019 forecast for Rogers. His $78.00 target represents a projected 12-month return of 12.9 per cent at the time of publication.