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Bear of the Day: Rogers Communication (RCI)

Jeremy Mullin

Rogers Communication (RCI) is a Zacks Rank #5 (Strong Sell) that provides cable television, high-speed internet and video retailing. The company also provides wireless services and operates radio and television broadcasting stations.

Overview of Company

Rogers is headquartered in Toronto, Canada and has the largest 5G network in the country. The company was founded in 1960, has almost 11 million subscribers and over 25,000 full-time employees. RCI has a market cap of almost $20 Billion and has a Forward PE of 18. The stock pays a nice dividend of 4%, but despite that positive, the stock is down over 20% on the year.

Fixed-Costs in a Bad Economy

Rogers has a sustainable business as the premier network in Canada. However, the business has a lot of fixed costs and with a pandemic harming the economy it will be difficult to grow or even meet earnings expectations. With less people on the move, roaming and overage revenue falls. Additionally, activations are down and the shutdown of sports has harmed media operations.

Cutting the Cord

Another issue for Rogers is that consumers are ditching cable for streaming services. While the company has adjusted, offering their SmartStream service that canaggregate content from the likes of Netflix and Amazon Prime, this costs an extra $5 a month. The service is new, but investors should be concerned if customers overlook the service and go straight to the streamers or a company like ROKU.

Earnings and Estimates

The company reported Q2 earnings at C$0.60 vs the C$0.79 expected. This miss of 27% was the sixth straight downside surprised, a slump that started in the second quarter of 2019.  

Digital ads, wireless churn and wireless postpaid ads were down year over year. ARPU and EBITDA were also both down significantly year over year. The company blamed the economic conditions and is confident that its strong balance sheet and market share will help it get through the downturn. While that is likely true, investors are not happy and have taken the stock down over 10% from its post-earnings highs.

Looking at estimates, we see numbers falling slightly for most time frames. For the current year, estimates have ticked lower by 1.1% over the last 30 days. For the year, we see a drop from $5.04 to $4.83, or 4.1% over the same time period.

 

Technicals

The stock rallied nicely of the March lows, but has since been stuck in the low $40s. After earnings, the stock moved higher, but failed at the 200-day MA. From there, RCI has been sold hard and revisiting its July lows.

The $38 area has been defended multiple times in the past, but it looks like there is limited upside from these areas. Until the stock can clear $42 and then $44, it is trending lower and investors should avoid.

In Summary

Longer-term investors might be attracted to the stability of the company and that dividend. However, as long as the pandemic persists, investors shouldn’t expect much price appreciation. There are better places to be that are thriving in this environment.

 
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