We downgrade our recommendation for Shaw Communications Inc. (SJR) to Neutral, which means the stock will perform in line with the broader market. The company’s first quarter fiscal 2010 financial results beat the Zacks Consensus Estimate. However, an unexpected drop in basic cable subscribers is a major concern. Shaw Communications is facing severe challenges from new entrants in the Canadian cable TV market. The company is yet to come out with any concrete date line for the implementation of its much hyped wireless network.
 
Shaw Communications’ cable operation is currently facing increased competition. Telus Corp’s (TU) entry into cable TV services has increased competitive pressure and may, in our view, shave Shaw’s market share and cap margin expansion. Furthermore, industry predicted that the company’s arch rival Rogers Communications Inc. (RCI) is desperately trying to enter Shaw Communications’ territory of western Canada through negotiating a swap of regional cable operations with Bragg Communications.
 
Shaw Communications announced that the company will take initial steps in 2010 to deploy a wireless network with a build-out over several years. The Canadian wireless market is quickly becoming competitive. In a bid to improve service and prices through competition, the Canadian federal government has licensed four new operators beside the three existing giants e.g., Bell Canada (BCE), Telus Corp, and Rogers Communications. New entrant Globalive intends to offer services in most of the country. Shaw Communications is highly leveraged, which may restrict the company’s wireless venture any time soon due to its significantly capital intensive nature.
Read the full analyst report on “SJR”
Read the full analyst report on “TU”
Read the full analyst report on “RCI”
Read the full analyst report on “BCE”
Zacks Investment Research