Echelon Wealth Partners analyst Rob Goff is holding onto his “Buy” rating for Rogers Communications (Rogers Communications Stock Quote, Chart, News TSX:RCI.B) after the telco’s latest quarterly results.
But in an update to clients on Thursday he lowered his target price from $79.00 to $74.00 on revised guidance from Rogers.
Shares of Rogers fell dramatically this week after the company delivered its third quarter earnings on Wednesday, where widespread adoption of its Rogers Infinite unlimited data plans precipitated a drop off in overage charges of approximately $50 million and caused management to lower its full-year revenue and earnings guidance.
“Last quarter, we led the market by introducing unlimited data and I am pleased to share that one million customers have already signed up for these very popular plans with no overage fees,” said Joe Natale, President and CEO, in a press release. “Customer adoption is three times higher than originally expected, reflecting pent-up demand for worry-free data. While the reduction in overage fees from these plans will impact our results in the next few quarters, the underlying economics of device financing and unlimited plans are favourable and position us for long-term growth.”
RCI reported third quarter revenue and EBITDA of $3.754 billion and $1.712 billion, zero per cent and six per cent year-over-year increases respectively, whereas the consensus was calling for $3.874 billion and $1.754 billion, respectively. For his part, Goff was expecting $3.891 billion and $1.767 billion.
Drilling down, wireless revenue and EBITDA for the quarter were $2.324 billion and $1.138 billion, representing year-over-year increases of zero per cent and four per cent, respectively.
Subscription additions were also lower than expected, coming in at wireless net postpaid and prepaid adds at 103,000 and 27,000, respectively, versus the consensus expectation of 100,000 and 50,000, respectively.
Goff wrote, “We continue to support Rogers’ move with its Infinite model given its potential to stimulate user growth. Management noted that the Infinite model is designed to stimulate Canadian wireless data use from current levels at ~1/3 seen by US subscribers.”
“The lower data use was highlighted as a contributing factor in the ~35 per cent penetration gap. It was further noted that Infinite service subscribers saw 50 per cent higher data use and that 60 per cent upgraded to the higher service level versus 40 per cent downgrading. Management continues to look for higher revenues with internal efficiencies due to lower call centre costs given the simplicity of the packages. However, competitive dynamics will determine whether savings are retained or moved to subsidies,” he writes.
Goff has lowered his 2019 revenue and EBITDA numbers by $181 million and $149 million, respectively, now calling for $9.2312 billion and $4.3409 billion, respectively. For 2020, Goff sees Rogers making $4.4254 billion on revenue of $9.4113 billion.
The lowered target of $74.00 per share represents a projected 12-month return of 24.1 per cent at the time of publication. Rogers’ share price dropped one per cent in trading on Thursday, leaving the stock down 13.7 per cent for the year and down 10.9 per cent over the past 12 months.