Shaw Communications is Canada’s best telco stock, Echelon says

Following the company’s first quarter results, Echelon Wealth Partners analyst Rob Goff has maintained his “Buy” rating on Shaw Communications (Shaw Communications Stock Quote, Chart, News TSX:SJR.B).

On Monday, Shaw reported its Q1, 2020 results. The company earned $162-million on revenue of $1.38-billion, a topline that was up 2.1 per cent over the same period last year.

“We continue to demonstrate consistent execution across our business units and remain focused on our growth segments including wireless, business and broadband,” said CEO Brad Shaw. “As the competitive landscape in wireless continues to intensify and evolve, our positioning in the market remains strong. Freedom Mobile’s reputation of providing high-quality and affordable wireless services, not just during the highly competitive holiday period, but every day, resonates well with customers and through the introduction of Freedom Home Internet, we have reinforced our dual brand strategy that enables us to effectively segment the broadband market.”

Goff summed up the quarter.

“Shaw reported a balanced quarter in a highly competitive environment,” the analyst said. “Freedom reported ABPU growth of 4.5% beating expectations although increased competitive intensity saw Postpaid wireless churn at 1.5% in FQ120, +22 basis point compared to last year and EBITDA $4M below expectations with COA pressures. Wireline saw reduced video losses bettering expectations with the outperformance attributed to bundling through the newly introduced BlueCurve initiative. BlueCurve bundled pricing balances discounts against improved subscriber retention and acquisition with management bullish on improved subscriber economics.”

In a research update to clients today, Goff maintained his “Buy” rating and one-year price target of $31.00 on Shaw, a figure that implied a return of 21.7 per cent at the time of publication.

The analyst thinks Shaw will post EBITDA of $2.39-billion on revenue of $5.48-billion in fiscal 2020.

“We remain bullish on Shaw and are keeping it as our top recommendation across the four national providers,” Goff said. “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 an opportunity as churning subscribers outweigh new-to wireless subscribers by ~3-4:1.

The analyst said some developments could turn him even more bullish on Shaw.

“We see the potential for positive longer-term forecast upgrades for wired given disciplined competitive dynamics and the ability for additional services to the home,” he added.”Financial strength (debt:EBITDA – 2.5:1, lower range of target leverage ratio of 2.5-3.0x) plus FCF leaves Shaw with financial flexibility for further share repurchases and/or dividend moves. With the ongoing progress at Freedom and the efficiency gains together with FCF, the outlook for Shaw becomes increasingly defensive/conservative with execution risk considerations being addressed.”