Shaw Communications remains undervalued, Echelon Wealth says

Following its second quarter results, Echelon Wealth Partners analyst Rob Goff remains bullish on Shaw Communications (Shaw Communications Stock Quote, Chart TSX:SJR.B).

On Tuesday, Shaw reported its Q2, 2019 results. The company earned $155-million on revenue of $1.32-billion, a topline that was down one per cent from the same period last year.

“We continue to make progress on our strategic priorities and journey to a modern Shaw,” CEO Brad Shaw said. “Second quarter results include stable wireline performance, improved broadband execution and solid subscriber growth in our wireless business. While we still have lots of work ahead of us, our second quarter and year-to-date results reflect improvement on all these initiatives, combined with a meaningful reduction in our cost structure that resulted in strong margin performance in the quarter.”

Goff says the quarter bested his expectations, with the company efforts in wireless doing most of the heavy lifting.

“We are encouraged by the increase in the high value, high-margin internet adds and ARPU/ABPU improvement in the wireline segment that would drive F2019 wireline EBITDA by 5.5% y/y to $2,017M. Wireless is clearly the driver with its EBITDA CAGR forecast at 29%. While wireless tends to be a focus, the emerging market discipline for wired with efficiency savings (OpEx savings estimated at $85M for F2019) and an impressive product roadmap (drawn by Comcast) strengthens our bullish outlook.

In a research update to clients today, Goff maintained his “Buy” rating and one-year price target of $32.00 on Shaw Communications, implying a return of 23.6 per cent at the time of publication.

Goff thinks Shaw will post EBITDA of $2.22-billion on revenue of $5.43-billion in fiscal 2019.

“We see the potential for positive longer-term forecasts on wired given the improved competitive dynamics and the ability for additional services to the home,” the analyst adds. “Financial strength (debt:EBITDA 1.9:1) plus FCF leave Shaw with dry powder, flexibility for auction and consideration for dividend moves over the medium term. With the ongoing progress at Freedom and on the efficiency gains together with FCF, the outlook for Shaw becomes increasingly defensive/conservative with execution risk considerations being addressed.”