Is Shaw Communications a buy right now?

It’s been a so-so year for Canadian telcos but investors seeking to sock away some cash in a defensive play might want to look past Shaw Communications (Shaw Communications Stock Quote, Chart, News TSX:SJR.B), whose lack of diversification could be a hindrance, says portfolio manager Michael Sprung.

Canadian telecom stocks have been a dim light in 2020, especially compared to positive-return sectors like technology and healthcare where despite the wider market pullback earlier on have managed to come out in the black so far.

Not so for the telcos, where names like Rogers Communications, Telus and BCE have struggled to regain ground lost in February and March. The same goes for Western Canada-focused Shaw, which is year-to-date down about 13 per cent. That’s not what you want to see even in an income stock with a healthy dividend.

And with the economy looking to recover over the next while, investors might get more bang for their buck with some of the bigger players in the space, says Sprung, president of Sprung Investment Management, who compared Shaw to Rogers in a BNN Bloomberg segment on Monday.

“Although they’re both in the telecommunications markets, Rogers is also largely in the media market and sports franchises and so they’re a little bit differentiated from that point of view,” Sprung said. “And I think with the prospect of economies normalizing a little bit certainly there’s hope that media and and the sports franchises are going to do better, where Shaw is not likely to participate in that book to quite the same extent.”

“On the other hand, Shaw has a fairly good dividend at around five per cent currently, which is certainly more than you’re going to see in in Rogers at this point in time,” Sprung said. “In terms of market placement, I think if you look at, say, a BCE or Telus or Rogers they have a much more dominant presence in the market.”

The Canadian telecom companies had a rough go of it earlier this year with the shutdown of retail outlets during the pandemic but the second half of 2020 has been better. Shaw posted its latest quarterly numbers in late October where its fiscal fourth quarter 2020 saw revenue stay flat year-over-year at $1.06 billion while profit was up five per cent to $175 million. EPS for the Q4 was $0.34 per share compared to $0.32 a year earlier. Shaw’s wireless business saw 60,000 customer adds over the Q4, a reflection of stronger retail traffic compared to the third quarter and strong demand for Shaw Mobile from Western Canada.

Overall, fiscal 2020 resulted in revenue up 1.3 per cent to $5.4 billion and net income drop 6.1 per cent to $688 million.

Shaw CEO Brad Shaw said the fiscal year was unique and challenging for the company.

“It is because of our significant long-term investments in our facilities-based networks that we could meet the surge in demand from our customers, while at the same time, expand our product suite with innovative and affordable wireline and wireless options for Canadians during their greatest time of need, including our Fibre+ Gig Internet speeds and a momentous achievement with the launch of Shaw Mobile,” he said in the quarterly press release.

The company brought forth guidance for its fiscal 2021 which calls for adjusted EBITDA growth, consolidated capital investments of $1.0 billion and free cash flow of about $800 million compared to FCF of $733 million in fiscal 2019 and $688 million in fiscal 2020.

“While no business is completely immune to the impacts from COVID-19, we have shown that we are resilient, agile and can deliver growth to our stakeholders in even the direst of circumstances, including significant free cash flow growth of nearly 40 per cent, exceeding our target in fiscal 2020,” Shaw said.

What’s Sprung’s final take on Shaw? A little neither here nor there.

“Shaw has always been an interesting company,” Sprung said. “Certainly, it’s has its management changes over the years but they have tended to try to develop into markets, with the IPTV and cellphones and so forth.”

“Overall, I think if I owned it I wouldn’t see any good reason to to sell it right now, but in terms of the industry I think there are other places that I would look,” he said.

The word on the Street seems positive on Shaw at the moment, with the stock currently having seven Buy recommendations and two Holds, according to Tipranks.

One analyst who stayed bullish on the stock after the Q4 earnings is Canaccord Genuity’s Aravinda Galappatthige, who in a client update on November 1 reasserted his “Buy” rating and lifted his 12-month target price from $27.00 to $28.50. For the quarter, Galappatthige had expected EPS of $0.35 per share versus Shaw’s $0.34 per share. At press time, the analyst’s $28.50 target represented a projected return of 30 per cent