Shares of Canadian cable TV behemoth Shaw Communications, Inc. SJR lost 2.2% value yesterday, touching a 52-week low of $18.85. Moreover, year to date, the company’s shares have declined over a substantial 30%.
Meanwhile, stiff competition from Canadian telecom and cable multi-service operators such as Rogers Communications Inc. RCI, TELUS Corp. TU and BCE Inc. BCE is resulting in persistent video cable and video satellite customer loss.
In the third quarter of fiscal 2015, Shaw Communications lost 24,524 video customers and 2,820 video satellite customers. Moreover, digital phone line count stood at 1,341,734, at quarter-end, reflecting a year-over-year reduction of 20,974 lines. Such a high churn level is certainly a concern for the company.
Additionally, Shaw Communications’ decision to abandon its wireless venture will significantly affect its competitiveness in the lucrative Canadian telecom market, in our view.
Further, high debts, escalating capital expenditure and a deteriorating cash position may act as headwinds going ahead. At the end of the third quarter, Shaw Communications had cash and marketable securities of $227.7 million, down 55.7% and outstanding debt of $4,045.6 million, up 6.8% from the fourth quarter of fiscal 2014, respectively. Meanwhile, the debt-to-capitalization ratio stood at 0.50 compared with 0.48 as of Aug 31, 2014.
Adding to the woes, escalating expenses owing to higher promotional activities and rising network fees may hurt margins.
For fiscal 2015, management expects both total revenues and operating income before amortization to grow 5–7% year over year. Free cash flow is projected to exceed $650 million.
Meanwhile, downward estimate revisions reflect pessimism regarding the stock’s prospects. The Zacks Consensus Estimate for 2015 and 2016 moved south by 2.1% each to $1.39 and $1.42 per share, respectively, over the last 60 days.
Currently, Shaw Communications carries a Zacks Rank #4 (Sell).
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