We are bullish on Shaw Communications stock, Echelon says

Shaw Communications (Shaw Communications Stock Quote, Chart, News TSX:SJR.B) remains the top pick among Canadian telcos for analyst Rob Goff of Echelon Wealth Partners.

In a Monday update to clients, Goff reviewed Shaw’s recently released quarterly financials and reiterated his “Buy” recommendation and $31.00 price target.

Calgary-based Shaw Communications reported its fourth quarter fiscal 2019 financials on Friday, posting revenue of $1.352 billion, a 1.9-per-cent increase year-over-year, and EBITDA of $537 million, down 3.4 per cent from a year earlier.

“In all areas across our organization, we made significant progress in fiscal 2019. We have firmly established Freedom Mobile as the industry innovator and recognized champion of wireless affordability for Canadians. Through years of thoughtful and strategic capital investing, we have built a high quality, facilities-based wireless network that is capable of meeting the evolving needs of our customers and continuing to fuel Freedom’s momentum,” said Brad Shaw, CEO, in a press release.

The consensus revenue and EBITDA was $1.356 billion and $547 million, respectively, whereas Goff was calling for revenue and EBITDA of $1.383 billion and $545.8 million, respectively.

Shaw Communications stock keeps $31.00 target and “Buy” rating…

Wired revenue was down 1.5 per cent to $1.071 billion, while internet net adds outperformed at positive 11,900 versus the consensus expectation of positive 6,900. Wireless for the quarter saw a big jump, registering revenue and EBITDA of $283 million and $54 million, respectively, which were up 17.4 per cent and 38.5 per cent, respectively.

On Shaw’s wireless gains, Goff says Shaw’s Freedom and 5G wireless threat are likely a consideration in Rogers Communications’ move to introduce its Infinite plan with no overage charges.

“The lucrative overage services represented both an impediment to market growth and a clear target for an attacker/new/newer entrant looking to gain share in what will soon be a 5G-powered wireless market,” writes Goff.

The analyst says that he sees the potential for positive longer-term forecasts on Shaw’s wired segment given the improved competitive dynamics and the ability for additional services to the home. Goff says that Shaw’s financial strength (where its debt to EBITDA ratio is 1.8:1) plus its free cash flow leaves the company with the financial flexibility and dividend moves over the medium term.

“We remain bullish on Shaw and are keeping it as our top recommendation across the four national providers. Our price target at $31.00 per share is confirmed at a time when price targets for peers are seeing downward moves. We continue to believe that there exists greater wireline financial discipline in Western Canada and continue to prefer the attacker position in a wireless market where elevated churn presents opportunity as churning subscribers outweigh new-to-wireless subscribers by ~3-4:1,” he writes.

Looking ahead, Shaw’s management gave guidance for fiscal 2020 which poses EBITDA growth of between 11 and 12 per cent, with capital investment of about $1.1 billion and free cash flow of about $700 million. Goff’s revised forecast calls for fiscal 2020 revenue and EBITDA of $5.539 billion and $2.266 billion, respectively, with the two being lowered by $44.8 million and $16.0 million, respectively.

Goff’s $31.00 target represents a projected return of 29.0 per cent at the time of publication.