Updated Research Report on Rogers - Analyst Blog

On Apr 11, 2014, we issued an updated research report on Rogers Communications Inc. RCI. We believe that significant expansion of LTE networks and an attractive dividend yield will support the stock price in the near future.

Rogers has delivered negative earnings surprises in all four quarters last year, with an average beat of negative 4.32%. The company reported mixed fourth-quarter 2013 financial results, where its bottom line missed the Zacks Consensus Estimate but the top line outpaced the same.

Rogers was the first company in Canada to launch LTE (Long Term Evolution) network. Initially, LTE network was deployed in 90 Canadian cities, which now covers over 60% of Rogers' footprint. Furthermore, the company has also entered into a 20-year deal with Videotron to expand the 4G LTE coverage across Québec and the Ottawa region in Canada. Both the companies will share the newly-built network across these rural areas of Canada, bridging the gap between rural and urban network speed.

Recently, the company launched a first-ever mobile wallet called Suretap, which is expected to encourage mobile payments in Canada. The company also unveiled a digital subscription magazine called Next Issue Canada. Moreover, the launch of the Share Everything service plan – which allows individuals, families and small businesses to share wireless data, provides unlimited nationwide talk and text, call display and voicemail facilities across 10 wireless devices – will not only drive ARPU but will also drive subscriber growth. Moreover, increased dividend payments coupled with share repurchase plans will continue to boost shareholders wealth going forward.

On the flip side, Rogers' Cable operations are currently facing increased competition. BCE Inc.'s BCE entry into cable TV services is imposing competitive pressure, and may likely slash Rogers' market share and impede cap margin expansion. Rogers' Media segment was affected by continued softness in the advertising market. We believe that much of the Media segment's growth is dependent on the strong viewership rating of Rogers' radio and TV broadcasting operations. To remain competitive, the company needs to heavily invest in new TV programs and TV channels. This may result in huge cash drain from Rogers' balance sheet.

Moreover, a highly leveraged balance sheet, weaker smartphones activations in the fourth quarter of 2013 and stiff competition from other industry players like TELUS Corporation TU and Shaw Communications Inc. SJR will continue to act as headwinds for the company while moving ahead.

Rogers currently carries a Zacks Rank #3 (Hold).