Rogers is our top telco pick for 2024: Desjardins

Analysts from Desjardins December 19 released a report featuring Top Picks for 2024 in a variety of sectors.

A space that puzzled many in 2023, telecom, will see a path to more clarity in 2024 says analyst Jerome Dubreuil, who has chosen Rogers Communications (Rogers Communications Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B) as his top telco pick.

The analyst says there will be less uncertainty for investors in the months to come.

“It has been an eventful 2H23 for Canadian telecoms with CRTC decisions on MVNO rates and temporary FTTH access, as well as a dynamic Black Friday,” Dubreuil wrote. “While the full impact of these events may not yet be in companies’ results or retail telecom market dynamics, at least we now have a much better idea of what the telecom sector is working with. We also expect EBITDA growth to be supported by continual cost consciousness in the sector.”

With the report, the analyst reiterated his “Buy-AA” (The AA denotes Above-average risk) rating but raised his price target on RCI.B from $70.50 to $76.00.

Dubreuil discussed the reasons for his recent re-rating of Rogers.

“Leverage is less of a concern when industry headwinds subside. In March 2023, we downgraded RCI to a Hold, citing the company’s elevated leverage while facing multiple industry headwinds as the main driver of our cautious stance. However, we recently upgraded the stock to a Buy as we have gained clearer insight into those industry headwinds. Simultaneously, RCI has demonstrated its capability to rapidly reduce leverage. Our expectation is that the company will maintain an aggressive approach on the promotional front to drive EBITDA growth and expedite deleveraging. Moreover, the 3800MHz auction cost was a positive development for the company, which spent much less than what the market had been anticipating. It is worth noting that investors’ concerns about RCI’s leverage are less pronounced now that industry headwinds are subsiding. RCI has proven its ability to generate robust financials amid heightened competition while delivering synergies faster than anticipated. As we gain more clarity on the regulatory landscape following the recent MVNO and TPIA decisions, the risk profile of RCI’s story has also improved on that front. Moreover, the company’s deleveraging performance in 3Q surpassed our expectations. Lastly, while predicting interest rates is challenging, there are indications that upward momentum may be slowing down and we believe the company should outperform in a scenario where interest rates decline.”

Rogers closed December 19 up one per cent to $61.07.