Rogers has price target chopped at Desjardins

Concerns about the cost of money have Desjardins analyst Jerome Dubreuil trimming his price target on Rogers Communications (Rogers Communications Stock Quote, Chart, News, Analysts, Financials TSX:RCI.B)

As reported by the Globe and Mail, Dubreuil November 28 maintained his “Buy” rating on Rogers, but cut his price target on the stock from $68.00 to $61.00.

The analyst went into some detail about how Rogers is raising money right now.

““We believe RCI’s tight balance sheet — due to slower-than-expected organic deleveraging and the MLSE consolidation — has led the company to explore financing alternatives that are more expensive than traditional debt,” he said. “The ‘surfacing of infrastructure value’ materializes in that the equity deal on the newly created infrastructure entity will likely cost 6–8 per cent in the first year ($420–560-million per year) vs the 9–10-per-cent cost of equity for an outright equity issuance at the Rogers level. We have increased our annual distribution assumption on the deal to $500-million (from $400-million), increasing by 3 per cent annually thereafter. Overall, the transaction is creative but the lack of tax deductibility and the potential growth of distributions over time will be expensive for RCI shareholders vs traditional debt.”

Dubreuil said the recent MLSE acquisition could prove to be financially troublesome.

“Setting up a costly financing could make investors demand more from the company’s MLSE investment,” he wrote. “As we estimate MLSE generates a relatively low FCF yield, it could prove challenging for RCI to generate strong returns on the investment unless management finds a way to dramatically increase the reflection of the asset’s value in RCI’s share price.”

At press time, shares of Rogers on the TSX were up 0.72% to $50.15.