Is Rogers stock in trouble? This investor says no

The turmoil surrounding Canadian telecom company Rogers Communications (Rogers Communications Stock Quote, Charts, News, Analysts, Financials TSX:RCI.B) has taken its toll on the share price which in recent weeks has fallen 13 per cent. But don’t panic, says Andrew Pyle, investment advisor at CIBC Wood Gundy, who says investors should even be thinking about buying at these levels.

“We still hold Rogers in our portfolio. It’s been a rough ride, obviously, to our investors in Rogers in the last few weeks,” said Pyle, speaking on BNN Bloomberg on Monday. 

“We tend to look beyond the the drama and the family feud. Obviously, it’s taken its toll on the stock. We would probably even be looking at this as an opportunity to add to positions in the portfolio,” he said.

A BC judge in the Rogers dispute has given Friday as the date to decide on whether or not to allow former chairman Edward Rogers has the authority to appoint a new board without an in-person shareholder meeting. Last month, Edward Rogers sparked the fracas by calling for Rogers CEO Joe Natale to step down and be replaced by then CFO Tony Staffieri. 

Edward Rogers, who earlier this month was removed as Board Chair after his efforts to oust Natale surfaced in September, has attempted to replace five board members but that move has been challenged by Rogers’ mother and two sisters who currently sit as board members. The claim from Edward Rogers is that as the head of the Rogers family trust, which owns 97 per cent of the class A voting shares, that a shareholder meeting is not required to oust the board members.

Last week, the company put out a statement on the hearing in the BC Supreme Court, saying, “As previously announced, the Company has determined the resolution is invalid. The Company welcomes the opportunity for the Court to consider the importance to shareholders and all stakeholders of conducting a shareholders meeting to change the Board of Directors.”

Canada’s largest wireless carrier with over ten million subscribers, Rogers made a bid to merge with Shaw Communications earlier this year, with Rogers proposing to pay $26 billion for Shaw, whose presence in Western Canada would allow Rogers to compete with Bell and Telus on a nationwide scale. The deal is currently being vetted by regulators for the federal government with decisions reported to be finalized by sometime in early 2022.

The drama and the Shaw deal are likely to weigh on Rogers and its stock for a while, but Pyle says such issues are temporary whereas operationally Rogers is in good shape.

“We still think the company has decent fundamentals going forward,” said Pyle. “And I think the company will get beyond this over time. It’s just becoming very problematic for investors watching their position dwindle as we play this out.”

“But I do think if we’re looking at this as a longer term play, which we should be in the portfolio, this is something that I think we do get behind and we do see the stock appreciating from current levels,” he said.

Like the other Canadian telcos, Rogers’ stock took a while to return to pre-COVID levels, finishing 2020 down 8.4 per cent. Currently, RCI.B is down about one per cent for 2021.

Rogers reported its fiscal third quarter 2021 results earlier this month, showing flat revenue on a year-over-year basis at $3.7 billion, with Cable and Wireless Services revenue growing by three per cent compared to a year earlier and Media dropping by three per cent.

Natale said Rogers has been benefitting from the reopening of businesses in the wake of COVID-19 and that the company should keep up its strong momentum for the rest of the year.

“Throughout the pandemic, we have continued to make significant investments in our customers and Canada, which has positioned us well to drive sustainable long-term growth. As we come together with Shaw, we will build on this foundation to bring next- generation connectivity to communities across Western Canada, helping to create jobs, attract investment, and increase economic growth,” Natale wrote in an October 21 press release.

Rogers’ net income dropped slightly for the fiscal Q3 from $512 million a year ago to $490 million, with EPS coming in at $0.94 per share compared to $1.01 per share a year earlier. Analysts had been expecting revenue of $3.7 billion and $1.02 per share in earnings.

Like the other telecom companies, Rogers has been investing heavily in upgrading its networks, saying it will have 5G network coverage for over 70 per cent of Canada’s population by the end of the year. 

“Fast and reliable connectivity not only enables people to learn and participate in the digital economy. It’s also a critical lifeline, providing vital access to healthcare, social services and emergency services,” said Natale in a third quarter conference call with investors. 

“The scale of the generational investments needed to address our country’s ongoing connectivity needs is significant, which is why our agreement to come together with Shaw is so important,” he said.