Shaw Communications Inc.(SJR) reported robust third quarter 2011 financial results, where both revenue and earnings per share (EPS) exceeded the Zacks Consensus Estimate. The year-over-year improvement was primarily attributable to the acquisition of the Shaw Media coupled with customer growth and rate increases in the Cable and Satellite segments.
Third Quarter Highlights
Net income in the reported quarter was $209.5 million or 46 cents per share compared with a net income of $163.5 million or 38 cents per share in the prior-year quarter. Adjusted EPS of 52 cents comfortably beat the Zacks Consensus Estimate of 40 cents per share.
Quarterly total revenue of approximately $1,327.6 million was up 36.1% year over year and beat the Zacks Consensus Estimate of $1,290 million.
Quarterly operating income before amortization was $598.9 million, up 33% year over year. Quarterly operating margin was 45.1% compared with 46.2% in the prior-year quarter.
Agreements of Analysts
Of the 5 analysts covering the stock in the last 30 days, 1 analyst raised estimates but 2 analysts moved in the opposite direction for the fourth quarter of 2011. Similarly, for the first quarter of 2012, out of the 2 analysts covering the stock none revised their estimates.
For fiscal 2011, during the last 30 days, out of the 7 analysts covering the stock, 5 analysts revised their estimates upward but 2 analysts moved downward. Likewise, for fiscal 2012, out of the 7 analysts, 6 analysts increased their estimates while 1 analyst moved in the opposite direction during the last 30 days.
The current Zacks Consensus EPS Estimate for the fourth quarter of 2011 is pegged at 35 cents. The projected annual growth rate is 17.33%. Similarly, for the first quarter of 2012, the current Zacks Consensus EPS Estimate of 47 cents indicates a gain of 30.56% year over year.
Magnitude of Estimate Revisions
For the fourth quarter of 2011, during the last 30 days, the current Zacks Consensus Estimate remains unchanged at 35 cents while the estimate, during the last 30 days, for the first quarter of fiscal 2012 was at break-even compared with the current estimate of 47 cents. Likewise, for fiscal 2011, during the last 30 days, the Zacks Consensus Estimate is pegged at $1.51, 4 cents short of the current estimate. Similarly, for fiscal 2012, the Zacks Consensus Estimate is pegged at $1.63, a dime short of the current estimate.
Earning Surprises
With respect to earnings surprises, the company has produced an average earnings surprise of 10.00% in the trailing four quarters. The ongoing quarter contains an upside potential of (essentially a proxy for future earnings surprises) 2.86% while the next quarter reflects 0.00% upside potential, while both fiscal 2011 and 2012, contains an upside potential of 0.00% each.
Our Recommendation
The acquisition of Canwest and the inclusion of Global TV network will improve Shaw Communications’s positioning in the Canadian cable TV market. Moreover, its enhanced service quality in terms of internet speed and HD and 3D ready set-top boxes at cheaper rates coupled with wireless deployment by 2012 will create new growth prospect for the company going forward.
However, the company continues to lose basic video customers due to increased competition from TELUS Corporation (TU), Rogers Communications Inc. (RCI) and BCE, Inc. (BCE), with combined Canadian cable and media market share of 90%. Moreover, the launch of popular Optik TV from Telus Corp. and delay in the roll out of wireless network service will further reduce market share as more and more companies start entering the lucrative Canadian market, which we believe will increase the competition going forward.
We, thus, maintain our long-term Neutral recommendation for Shaw Communications Inc. Currently, Shaw Communications Inc. has a Zacks #2 Rank, implying a short-term Buy rating on the stock.
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