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Rogers Communications Slips to Sell, Lags Industry Mark

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On Dec 20, Canadian cable behemoth Rogers Communications Inc. (RCI - Free Report) was downgraded by a notch to a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The downgrade may be due to the competitive wireless and cable TV markets, persistent softness in the advertising markets and loss of viewers to video streaming service providers.

Concerns: Price Performance, Competition

Shares of Rogers Communications have underperformed the Zacks categorized Cable TV industry growth on a year-to-date basis. The stock has gained 11.20% but has failed to beat the industry mark of 18.04%.

Rogers Communications faces fierce competition from large incumbents like TELUS Corporation (TU - Free Report) and BCE Inc. (BCE - Free Report) and other small regional carriers. Moreover, Shaw Communications Inc.’s foray into the Canadian wireless market with the WIND Mobile acquisition raises competition for Rogers Communications.

The cable TV industry has become more competitive for Rogers Communications after BCE Inc.’s entry into cable TV services. This may likely slash Rogers Communications’ market share and cap margin expansion. Rogers Communications’ Media segment was also affected by persistent softness in the advertising market. The cable company has also lost viewers to video streaming service providers like Netflix.

Further, the company exited the third quarter earnings of 2016  with high debt levels. This accumulating debt and declining cash flow may pose problems for its credit ratings in the days ahead.

IoT Prospects Solid

Inspite of the company’s underperformance with respect to the industry, we expect the company to perform better in the years ahead based on the following factors.

Rogers Communications is the first wireless operator in Canada to offer Internet of Things services like End-to-End Incident Management, Farm & Food Monitoring, Level Monitoring to business enterprises. Meanwhile, the company’s decision to purchase broadcasting company Tillsonburg Broadcasting Company Limited bodes well. Rogers Communications’ recently launched cost-effective, simple and competitive IaaS Cloud services and Rogers Unison (a new mobile solution that has in-built features of a traditional landline phone) have boosted its postpaid wireless and Internet subscriber base.

Rogers Communications added 39,000 high-speed Internet customers during the third quarter. As of Sep 30, 2016, high-speed Internet subscriber count was 2.115 million, up 4.1% year over year. The company is also focusing on its business enterprise segment.

As of the recent activities, Rogers Communications has announced plans to dump its Internet Protocol TV (IPTV) platform and adopt Comcast Corp.’s (CMCSA - Free Report) cloud-based X1 video platform. With this, the company will be the third cable operator in Canada after Shaw Communications and Cox Communications to shift to the X1 platform. Also, this adds to the growing list of Canadian cable operators that have dropped their proprietary IPTV plans.

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