We downgrade our recommendation on Rogers Communications Inc. (RCI) to Neutral based on its current valuation. The stock price has soared nearly 20% during the last four months and is trading at the high-end of its 52-week price range at present. Nevertheless, the company continues to show signs of improvement as it has become the first wireless operator in Canada to launch super-fast (4G) LTE networks.
In the first quarter of 2011, Rogers achieved some milestones including the sale of the highest number of smartphones to new customers, providing its second highest number of smartphone activations, and a significant increase in wireless data revenue. Wireless segment margin was a solid 49%. Rogers also hiked the dividend rate by 11% and renewed C$1.5 billion of share buy-back program. However, we believe these positives are already reflected in the current valuation leaving little room for above market gain.
In July 7, 2011, Rogers achieved a milestone as the company was the first in Canada to launch LTE (Long Term Evolution) network. The LTE network has inititally been deployed in Ottawa, which will be extended into three more cities – Toronto, Vancouver and Montreal – within the next 3-4 months.
Furthermore, Rogers will roll out the 4G super-fast network in 21 additional cities in Canada in 2012. Rogers used network infrastructures of L.M. Ericsson AB (ERIC) for LTE networks. The company also declared that LTE-enabled smartphones manufactured by Samsung and HTC will be available by the end of 2011. Rogers’ LTE network will offer download speed within the range of 12 Mbps-25 Mbps.
Massive growth of smartphones and mobile Internet data services are forcing the Canadian wireless operators and cable MSOs to install 4G super-fast networks. The incumbent telecom operator BCE Inc. (BCE) will also launch LTE network in late 2011 and Telus Corp. (TU) will follow suite in 2012. Rogers’ wireless operations, which account for more than half of the company’s total revenue and almost 65% of its EBITDA, are well positioned with the lead share (37%) of the Canadian market.
Nevertheless, it was necessary for the company to get onboard with these next-generation technologies in order to maintain its dominant position in the market.
BCE INC (BCE): Free Stock Analysis Report
ERICSSON LM ADR (ERIC): Free Stock Analysis Report
ROGERS COMM CLB (RCI): Free Stock Analysis Report
Be the first to comment