Rogers' Value — A Call Worth Making

7/4/2011


  Recent Price
$38
  Dividend
$1.49
  Yield
3.9%
  P/E Ratio
13
  Shares (millions)
557
  Long-Term Debt as % of Capital
72%
  52-Week Price Range
$40.82 - $31.78

Rogers Communications ($38; RCI), a sprawling media conglomerate, keeps a high profile in Canada. The company operates Canada's largest publishing company, 51 radio stations, and the Toronto Blue Jays baseball team. More importantly, Rogers holds a roughly 36% share of the country's wireless market and 30% of the cable-television market.

But the cable industry has matured, wireless growth is moderating, and Canadian regulators' efforts to increase wireless competition have eroded pricing.  Rogers' recent operating results reflect those challenges. Cash provided by operations rose at an annualized rate of 22% over the last 10 years but was about flat in 2010 and slipped 9% in the March quarter.

However, investors appear to be overreacting to the slowdown, and the shares appear cheap at 13 times trailing earnings, a 13% discount to their three-year average. Rogers trades at 12 times projected 2011 earnings, versus an average of 17 for S&P 1500 telecom-services stocks. Rogers is a Long-Term Buy.

Business breakdown

Rogers' wireless business (58% of 2010 revenue, 67% of adjusted operating profit) is leveraged to smartphone growth. Smartphone activations surged 53% in the March quarter. Rogers controls 47% of the Canadian smartphone market — well above the 24% of its closest competitor.

Increased competition has shrunk Rogers' share of both Canada's wireless and smartphone markets in the past year. However, Rogers carves its slice from an expanding pie. Canada's wireless penetration rate of 71% is projected to increase at least four percentage points a year over the next several years.

Rogers plans to introduce its long-term evolution (LTE) network in Toronto, Montreal, Vancouver, and Ottawa in the September quarter, ahead of its rivals. The rollout coincides with chatter that America Movil ($52; AMX), which provides wireless service to 225 million customers in North and South America, will look to rent a portion of the airwaves of a Canadian operator. Such a partnership could help fund the new network.

Rogers' remaining businesses are cable (29%, 30%) and media (13%, 3%), the latter poised to catch the rebound in advertising. Management expects the media unit to grow profits at least 21% this year. The media unit consists of television (37% of unit revenue), publishing (17%), radio (15%), the Shopping Network (17%), and sports entertainment (12%).

Conclusion

Investors share in the success of Rogers, which pays out about half of its profits in dividends. Rogers has raised its dividend more than tenfold the last five years, including an 11% hike in February. The current 3.9% yield dwarfs the stock's 10-year average rate of 1.4%. In addition, stock buybacks have lopped 12% off the share count in the past two years.

Rising analyst estimates call for growth in per-share profits of 8% for full-year 2011 and 9% for 2012, projections that sound conservative. An annual report for Rogers Communications Inc. is available at 333 Bloor Street E., 7th Floor, Toronto, ON M4W 1G9; (800)-564-6253; www.rogers.com.

ROGERS COMMUNICATIONS
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '11
0.73
vs.
0.64
+ 8%
36.80
-
33.62
13 - 12
Dec '10
0.66
vs.
0.64
+ 9%
40.82
-
33.70
15 - 12
Sep '10
0.75
vs.
0.84
- 1%
38.33
-
31.78
14 - 11
Jun '10
0.71
vs.
0.57
+ 2%
37.09
-
31.99
14 - 12
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
12.18
2.78
1.21
40.82
-
29.61
15 - 11
2009
11.21
2.44
0.95
32.38
-
19.59
13 - 8
2008
9.26
1.53
0.85
46.40
-
22.61
30 - 15
2007
10.24
1.58
0.28
54.28
-
29.67
34 - 19
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
92
42
82
95
56
NA
71

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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