Rogers Communications to Outperform – Analyst Blog

We upgrade our recommendation to Outperform for Rogers Communications Inc. (RCI) following its first quarter 2010 financial results, significantly above the Zacks Consensus Estimates. Free cash flow, cash returns to shareholders, and adjusted operating profit increased in double digits.

 

Rogers’ Wireless operations, which account for more than half of the company’s total revenue and 64% of its EBITDA, are well positioned with the lead share (37%) of the Canadian market. Wireless penetration in Canada is little more than 60%, providing massive growth opportunities for the well-positioned Canadian operators.

 

In the first quarter 2010, wireless data revenue was $415 million, up 40% year-over-year and represents 26% of the total Wireless segment revenue. Subscribers with smartphones now represent approximately 33% of the overall postpaid subscriber base, up from 23% from the prior-year quarter, and generate significantly higher than the average revenue per user (ARPU).

 

According to our assessment, deployment of high-speed HSPA+ wireless network and DOCSIS 3.0 cable network will sustain future growth of the company. Rogers’ cable operations are also growing rapidly, fueled by its triple play packages (cable, telephony and Internet services).

 

With respect to several valuation metrics, Rogers is currently trading at a significant discount to both the Industry average and the S&P 500 average. Given the strong growth of wireless Data revenue, huge activation of 3G smartphones and gradual increase in Internet and digital cable customer base, we believe the current stock price does not adequately reflect the company’s true growth potential. We therefore upgrade our recommendation to Outperform.