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We reaffirm our long-term Neutral recommendation on Shaw Communications Inc. (SJR - Analyst Report) based on the mixed financial results for the third quarter of fiscal 2013. While net income beat the Zacks Consensus Estimate, revenues fell below the same. Shaw currently has a Zacks Rank #3 (Hold).

Why Reiterated?

In the third quarter of fiscal 2013, Shaw performed impressively with respect to net customer additions in several sectors. The company added 4,157 high-speed Internet subscribers and 17,719 digital phone lines. During the third quarter of 2013, the company generated around $395.2 million of cash from operations, up 17.4% year over year.

Management raised its free cash flow estimate for fiscal 2013 to $590-$600 million from the prior estimate of $550 million. Nevertheless, Shaw lost 26,578 basic cable TV subscribers and 2,930 DTH (direct-to-home) subscribers. This indicates that the company’s cable operation is facing severe problems.

Shaw entered into an agreement with Rogers Communications Inc. (RCI - Analyst Report) to sell its AWS spectrum holding in 2014. The company sold its Hamilton cable business to Rogers for $400 million.  Moreover, Shaw acquired Rogers’ one-third interest in specialty TV Network – TVtropolis -- and will negotiate with Rogers for starting certain services in Western Canada. TVtropolis, together with Canwest, will strengthen Shaw‘s leading position in the specialty television business.

Shaw offers triple-play cable and satellite TV, Internet, and wireline phone services, whereas its main competitor, Telus Corp. (TU - Analyst Report), offers Cable TV, Internet, wireline and wireless services. Telus shares a national wireless network with Bell Canada, a division of BCE Inc. (BCE - Analyst Report). Its popular Optik TV, offering IPTV services, is gaining huge market traction. In order to remain competitive, Shaw is gradually expanding its Wi-Fi network.

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