Rogers Communications stock has become pricey, this investor says

Safety during times of market uncertainty is a virtue, which is why utility stocks like the Canadian telecoms with their fat dividends and low volatility are perennial favourites among investors. But there’s something to be said for taking a less defensive stance — especially when the alternative options are on the pricey side, which is how Colin Stewart of JC Clark Limited views stocks like Rogers Communications (Rogers Communications Stock Quote, Chart, News TSX:RCI.B).

“Nothing against Rogers,” said Stewart, CEO and portfolio manager for JC Clark, who spoke to BNN Bloomberg on Monday. “We don’t love the telco space right now.”

“This is a defensive area and the stocks have all done very well as people have been hiding out in these. They’ve been seen as high-quality, defensive businesses paying dividends,” he says. “I think that from a valuation standpoint, Rogers is trading towards the higher end of where it has historically traded.”

After a number of years of upward movement, Rogers has been flat over the past 12 months, ranging between a low of $64.25 and a high of $73.82 and currently trading at $68.40 as of midday Tuesday. Year-to-date, Rogers is down 2.2 per cent, whereas its rivals BCE (TSX:BCE) and Telus (TSX:T) are up 14.3 per cent and 5.5 per cent, respectively.

Rogers Communications: stock has gotten pricier like all telcos

“These telco stocks are not as cheap as they probably once were five years ago — although, I guess you could say that about the whole market,” says Stewart. “We just think that there are probably better opportunities elsewhere.”

Rogers recorded a slight miss in its last quarterly report, with wireless subscription numbers sagging. The telco delivered its second quarter ended June 30, 2019, on July 23, coming in with revenue and EBITDA of $3,789 million and $1,635 million, respectively, compared to the consensus forecast which called for $3,879 million and $1,630 million, respectively.

On postpaid net subscriber additions, Rogers posted 77,000, which was lower than the Street’s forecast of 99,250, with the Big Three facing more pressure from smaller Canadian outfits like Shaw Communications and Quebecor.

The competitive nature of Canada’s telco space was laid bare over the past two months when Rogers was the first to introduce unlimited wireless plans, allowing customers to use more data without the threat of overage charges. Both BCE and Telus quickly followed suit with similar plans.

Initially thought to be a sign of slower revenue growth going forward, in its Q2 release at the end of July, Rogers said that 365,000 of its customers had already moved to one of the unlimited data plans, with two-thirds of those choosing to move from less expensive options to a more expensive unlimited option, an unexpected event, said Rogers CEO and President Joe Natale.

“We’re pleasantly surprised to see that mix go in that direction. It supports the fact that customers really do want worry-free access to data,” said Natale in an interview with the Canadian Press. “It is still early days but we’re very pleased with what we’re seeing so far.”

At press time, shares of Rogers Communications were up 0.4 per cent to $68.48 as $1.04-million shares changed hands.