Is Rogers Communications a Sell After Q2 Earnings Miss?

Zacks Investment Research downgraded Canada-based Rogers Inc. (RCI) by a notch to a Zacks Rank #4 (Sell) on Sep 24, 2014.

Why the Downgrade?

Rogers’ Cable operations are currently facing intensifying competition. BCE Inc.’s (BCE) entry into cable TV services is further increasing competitive pressure and may likely slash Rogers’ market share and impede cap margin expansion. BCE is aggressively rolling out IPTV network and offering triple-play services at highly attractive prices, which are quite popular particularly in the low-end market segment.

Rogers’ Media segment was affected by continued softness in the advertising market. We believe that much of the segment’s growth is dependent on viewership ratings of Rogers’ radio and TV broadcasting operations. To remain competitive, the company needs to invest heavily in new TV programs and TV channels. However, this may result in considerable cash drain from Rogers’ balance sheet.

Rogers reported second-quarter 2014 financial results wherein both its top and bottom line missed the Zacks Consensus Estimate. Also, the company’s Wireless segment performed disappointingly in certain operating metrics in the quarter. Equipment sales were $115.5 million, down 12% year over year. The segment’s revenues declined 1% year over year. Quarterly Postpaid ARPU stood at $60.9, down 1.4% year over year. In addition, the company activated nearly 588,000 smartphones against 678,000 in the prior-year quarter. Rogers also expects operating profit margin to decline in 2014.

For the current year, there has been a negative movement in the earnings estimates over the last 90 days. Consequently, the Zacks Consensus Estimate for earnings has moved down 1.4% to $2.79.

Other Stocks to Consider

Other stocks worth considering in this sector are CommScope Holding Company, Inc. (COMM) and Cablevision Systems Corporation (CVC). CommScope sports a Zacks Rank #1 (Strong Buy) while Cablevision carries a Zacks Rank #2 (Buy).