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Neutral on Rogers Communications

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We reaffirm our long-term Neutral recommendation on Rogers Communications Inc. (RCI - Free Report) . The company’s fourth quarter of 2012 financial results outpaced the Zacks Consensus Estimates.

Why Kept at Neutral?

Rogersis the largest telecom operator of Canada. Rogers was the first company in Canada to launch LTE (Long Term Evolution) network. At present, the company has expanded its LTE network to 60% of Canada. Management expects to achieve 100% foothold by late 2013. Deployment of LTE network has resulted in an 80% year over year increase of Internet usage by its subscribers.

Meanwhile, the stock price has moved up 50% in the last year and is currently trading at the high-end of its 52-week price range. We believe that Rogers is fairly valued at this stage and the stock price will not provide above market gain any time soon. Rogers currently has a Zacks Rank #2 (Buy).

Balanced View on Rogers

Rogers’ wireless operations, which account for nearly 57.7% of the company’s total revenue and almost 65% of its EBITDA, are well positioned in the Canadian market. In the fourth quarter of 2012, the wireless segment activated 940,000 smartphones (up 18.8% year over year). Growing demand for mobile data and huge activation of the latest smartphones will pave the way for Rogers’ future growth.We believe that significant expansion of LTE networks and an attractive dividend yield will support the stock price in the near future.

Rogers has entered into an agreement with Shaw Communications Inc. (SJR - Free Report) to acquire Shaw’s cable system in Hamilton, Ontario and secure an option to purchase Shaw's Advanced Wireless Services (AWS) spectrum holdings in 2014. Rogers will sell its one-third interest in specialty channel –Tvtropolis - to Shaw and also entered into negotiations with Shaw for the provision of certain services in Western Canada.

Nevertheless, Rogers’ Cable operations are currently facing increased competition. BCE Inc.’s (BCE - Free Report) entry into cable TV services through its subsidiary Bell Canada is increasing competitive pressure, and will probably slash Rogers’ market share and cap margin expansion. BCE Inc. is aggressively rolling out IPTV network. Another competitor, TELUS Corp. (TU - Free Report) , is rapidly gaining market traction. At the end of 2012, TELUS had 678,000 IPTV customers, up 33% year over year. Such robust growth in IPTV subscribers was mainly attributed to higher demand for its Optik TV services.

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