Rogers is an undervalued stock, RBC says

With the integration of Shaw Communications underway, RBC analyst Drew McReynolds says Rogers Communications (Rogers Communications Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B) is undervalued.

As reported by the Globe and Mail, the analyst April 25 cut his price target on RCI.B from $68.00 to $67.00 but maintained his “Outperform” rating on the stock.

McReynolds says the acquisition of Shaw could provide the next leg-up for Rogers.

“With an eye on our 2025 estimated NAV [net asset value] of $67 per share as a next phase in the Rogers-Shaw era begins, we believe current share price levels represent an attractive entry point reflecting: (i) the flow-through impact of now full runrate Shaw cost synergies alongside what should be improving cable performance and continued strong wireless outperformance; (ii) a steady de-risking of the stock as the Shaw integration winds down, the competitive landscape post-Rogers-Shaw-Quebecor transactions finds a new equilibrium, leverage declines, and management’s track record of improved execution lengthens; and (iii) option value on non-core and/or non-telecom asset sales/crystallizations,” the analyst wrote.

McReynolds drilled down on what Rogers numbers might look like, going forward.

“With additional post-Q1/24 cost synergies assumed in our 2024 and 2025 cable EBITDA and EBITDA margin forecast, importantly, management indicated that an additional 100–200 basis points of cable EBITDA margin expansion is still expected, driven by the combination of underlying positive cable revenue growth, the realization of further cost efficiencies over time, and the evolving revenue mix,” he wrote. “With what appears to be underlying cable EBITDA pressure given the top-line decline as well as likely incremental reinvestments in the business, the path for returning to positive revenue growth alongside further margin expansion is likely to remain in focus. We further trim our 2025 cable EBITDA margin estimate from 58.5 per cent to 57.4 per cent and now assume 58-per-cent cable EBITDA margins through the medium term (previously 59 per cent).”