SJR Shaw Communications Inc

We downgrade the largest telecom operator of Canada, Rogers Communications Inc. (RCI) to Neutral based on the company’s high level of current valuation and growing competitive threat in the Canadian telecom market.

Why the Downgrade

The stock price of Rogers Communications has moved up nearly 36% in the last year, significantly outpacing the S&P 500 return of just 14.4% in the last year. Rogers is currently trading at the high-end of its 52-week price range. With respect to several valuation metrics, Rogers is also trading at significantly higher multiples compared to the S&P 500.

We believe the company is currently fairly valued and the stock price will not provide above market gain any time soon. Rogers Communications now has a Zacks #3 Rank (Hold).

Other Causes of Concern

In a bid to improve service and prices through competition, the Canadian federal government has licensed four new operators in the wireless market.We believe that these new entrants could give a tough competition to incumbent Rogers and Bell Canada, a subsidiary of BCE Inc. (BCE).

Rogers’ Cable operations are currently facing increased competition. Bell Canada’s entry into cable TV services is increasing competitive pressure, and may likely slash Rogers’ market share and cap margin expansion.

Bell Canada is aggressively rolling out IPTV network, resulting in a loss of about 16,000 video subscribers of Rogers in the third quarter. In addition, BCE Inc. is offering triple-play services with highly attractive prices, which is quite popular particularly among the low-end market segment.

Canadian Telecom Stocks that Warrant a Look

While for the time being, we perfer to be sidelined for Rogers Communications, other Canadian telecom stocks worth a look are Shaw Communications Inc. (SJR), BCE Inc. and Telus Corp. (TU). Shaw Communications currently enjoys a Zacks #2 Rank (Buy), whereas both BCE and Telus have Zacks #3 Rank (Hold).

 
BCE INC (BCE): Free Stock Analysis Report
 
ROGERS COMM CLB (RCI): Free Stock Analysis Report
 
SHAW COMMS-CL B (SJR): Free Stock Analysis Report
 
TELUS CORP (TU): Free Stock Analysis Report
 
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