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Analyst Blog

On Aug 22, 2014, we issued an updated research report on Rogers Communications Inc. (RCI - Analyst Report). 
 
Rogers has delivered negative earnings surprises in all four quarters last year, with an average surprise of negative 7.46%. The company reported lackluster second-quarter 2014 financial results, wherein both its top and bottom line missed the Zacks Consensus Estimate.
 
Rogers was the first company in Canada to launch the LTE (Long Term Evolution) network. Initially, the network was deployed across 90 Canadian cities, which now covers over 60% of Rogers’ footprint. Furthermore, the company has entered into a 20-year deal with Videotron to expand the 4GLTE 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.
 
Meanwhile, Rogers landed a 10-year broadcasting deal with WWE Entertainment. Per the agreement, Rogers will be the exclusive distribution partner of all WWE pay-per-view events in Canada. Also, the company recently received its first major National Hockey League (NHL) sponsorship from one of Canada’s leading banks, Scotiabank. Rogers also renewed its contract with a major baseball team for the next eight years. Interestingly, the deal will allow Rogers’ customers to watch all games on multiple platforms.
 
Earlier, 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. This will not only drive ARPU but also subscriber growth.
 
On the flip side, Rogers’ Cable operations are currently facing increased competition. BCE Inc.’s (BCE - Analyst Report) entry into cable TV services is imposing competitive pressure and may also slash Rogers’ market share and impede cap margin expansion.
 
Likewise, 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. However, this may result in considerable cash drainage.
 
Moreover, a highly leveraged balance sheet, weaker smartphone activations in the fourth quarter of 2013 and stiff competition from other industry players like TELUS Corporation (TU - Analyst Report) and Shaw Communications Inc. (SJR - Analyst Report) will continue to act as headwinds for the company while moving ahead.
 
Rogers currently carries a Zacks Rank #3 (Hold).

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