On Dec 21, 2015, shares of Canadian cable TV behemoth Shaw Communications, Inc. SJR slid to a 52-week low of $16.90. In fact, year to date, the company’s shares have declined over a substantial 37.06%. The bearish Zacks Rank #5 (Strong Sell) that SJR currently holds further supports the plunge in the stock’s price.
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 at the company. This may be seen as a key factor responsible for the stock losing value on the bourse.
In the fourth quarter of fiscal 2015, Shaw Communications lost 33,832 video customers and 7,953 video satellite customers. Moreover, digital phone lines totaled 1,027,266 at quarter-end, reflecting a year-over-year reduction of 35,515 lines. Such a high churn rate poses concern for the company.
Additionally, we believe, Shaw Communications’ decision to abandon its wireless venture may significantly affect its competitiveness in the lucrative Canadian telecom market.
Further, escalating debt, escalating capital expenditure and a deteriorating cash position pose significant hurdles. At the end of fiscal 2015, Shaw Communications had cash and marketable securities of approximately $379 million, down 40.8% year over year. Total outstanding debt of $4,337 million was up 20.9% year over year. The debt-to-capitalization ratio stood at 0.47 compared with 0.48 at the end of the fourth quarter of fiscal 2014.
Shaw Communications has rolled out a new brand and advertising promotional campaign, which is ramping up expenses at the company. Moving ahead, it also expects additional network fees in the forthcoming quarters. These combined costs will adversely impact margins in the near term.
For fiscal 2015, management expects both total revenue and operating income before amortization to remain flat 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 have remained unchanged at $1.33 and $1.34 per share, respectively, over the last 30 days.
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