Rating Update: Stock Rating D-Negative (7/10/19)-Rogers Communications Inc (RCI).

out_logo_500#04022.jpg

BUSINESS

Rogers Communications Inc. operates as a communications and media company in Canada. The company’s Wireless segment offers wireless telecommunications services to consumers and businesses under the Rogers, Fido, and chatr brands; and wireless devices, services, and applications. This segment distributes its products through independent dealer networks, company-owned retail stores, retail chains and convenience stores, e-commerce sites, call centers and outbound telemarketing, and other distribution channels. As of December 31, 2017, it had approximately 10.5 million subscribers. The company’s Cable segment provides high-speed broadband Internet access, digital television and online viewing, phone, and home Wi-Fi services to consumers, businesses, and enterprises; and monitoring, security, automation, energy efficiency, and smart control services.
out_plist#04022.jpg

INVESTMENT RATING

out_map1#04022.jpg

RCI is expected to continue to be a major Value Builder reflecting capital returns that are forecasted to be above the cost of capital.

Rogers Comm has a current Value Trend Rating of D (Negative).
This rating combines consistent signals from two proprietary PTR measures of a stock’s attractiveness. Rogers Comm has a neutral Power Rating of 44 and a slightly negative Appreciation Score of 38, and the Negative Value Trend Rating results.

Rogers Comm’s stock is selling at targeted value. The current stock price of $53.75 compares to targeted value 12 months forward of $53.
This moderately low appreciation potential results in an appreciation score of 38 (62% of the universe has greater appreciation potential.)
out_pt#04022.jpg

Rogers Comm has a Power Rating of 44. (This neutral Power Rating indicates that RCI’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: earnings estimate behavior for RCI has been slightly negative recently; and is in a slightly weakened position current. An offsetting factor is recent price action has been neutral.

INVESTMENT PROFILE

RCI’s financial strength is average. Financial strength rating is 59.
out_pfit1#04022.jpg

Relative to the S&P 500 Composite, Rogers Communications Inc has both Growth and Value characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that RCI is normal risk. Relative weaknesses include: low financial strength, high financial leverage, and low expected growth. RCI’s valuation is moderate: high dividend yield, moderate P/E ratio, and moderate price/book ratio. RCI has normal market capitalization.

CURRENT SIGNALS

Rogers Comm’s current operations are eroding. Return on equity is falling, reflecting: and falling asset utilization.

Rogers Comm’s current technical position is very strong. The stock price is in a 11.2 month up move. The stock has appreciated 27.6% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.

ALERTS

Important negative changes in Rogers Communications Inc (NYSE: RCI) fundamentals have recently occurred: the stock’s power rating fell below 50, and significant quarterly sales deceleration occurred.
The stock is currently rated D.
Rogers Communications Inc (NYSE: RCI) stock closed at $0.15 on 7/10/19 after a major increase of 11.1%. Moreover, above average trading volume at 125% of normal accompanied the advance. The stock has risen 1.1% during the last week and has performed in line with the market over the last nine months.

CASH FLOW

In 2018, Rogers Comm generated a very significant increase in cash of +$297 million (). Sources of cash were much larger than uses. Cash generated from 2018 EBITDA totalled +$4,374 million. Non-operating uses consumed -$155 million (-4% of EBITDA). Cash taxes consumed -$183 million (-4% of EBITDA). Re-investment in the business amounted to -$1,949 million (-45% of EBITDA). On a net basis, debt investors removed -$1,210 million (-28% of EBITDA) while equity investors received -$580 million (-13% of EBITDA).
out_cflow.1#04022.jpg

Rogers Comm’s Non-operating Income, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Rogers Communications Inc Peer Group as well. In most years, Rogers Comm was in the second quartile and top quartile. Currently, Rogers Comm is above median at -4% of EBITDA (-$155 million).

Rogers Comm’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Rogers Communications Inc Peer Group as well. In most years, Rogers Comm was in the top quartile and second quartile. Currently, Rogers Comm is above median at -4% of EBITDA (-$183 million).

Rogers Comm’s Business Re-investment, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Rogers Communications Inc Peer Group. In most years, Rogers Comm was in the third quartile and lower quartile. Currently, Rogers Comm is slightly above median at -45% of EBITDA (-$1,949 million).

Rogers Comm’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Rogers Communications Inc Peer Group. In most years, Rogers Comm was in the second quartile and top quartile. Currently, Rogers Comm is below median at -28% of EBITDA (-$1,210 million).

Rogers Comm’s Equity Investors, %EBITDA has enjoyed a strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Rogers Communications Inc Peer Group. In most years, Rogers Comm was in the second quartile and top quartile. Currently, Rogers Comm is above median at -13% of EBITDA (-$580 million).

Rogers Comm’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Rogers Communications Inc Peer Group as well. (Since 2014 Change in Cash, %EBITDA has experienced very sharp improvement.) In most years, Rogers Comm was in the second quartile and top quartile. Currently, Rogers Comm is upper quartile at +7% of EBITDA (+$297 million).
out_cflow.2#04022.jpg

Rogers Comm’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Rogers Communications Inc Peer Group as well. In most years, Rogers Comm was in the lower quartile and top quartile. Currently, Rogers Comm is at the lower quartile at +3%.

PROFITABILITY

RCI’s return on equity has eroded very significantly since 2009 although it experienced a very sharp recovery after the 2016 low.
This very significant erosion was due to very strong negative trend in pretax operating return and very small negative trend in non-operating factors.
The productivity of RCI’s assets declined over the full period 2009-2019: asset turnover has suffered a very strong overall downtrend although it recently stabilized from the 2015 level.
Reinforcing this trend, pretax margin has experienced a downtrend but it experienced a very sharp recovery after the 2016 low.
Non-operating factors (income taxes and financial leverage) had a very small negative influence on return on equity.
out_dpgrfs3#04022.jpg

RCI’s return on equity is at the upper quartile (24.7%) for the four quarters ended March, 2019.
out_dpgrfs3.2#04022.jpg
Operating performance (pretax return on assets) is at the upper quartile (8.5%) reflecting asset turnover that is below median (0.46X) and upper quartile pretax margin (18.5%).
Tax “keep” rate (income tax management) is at the lower quartile (72.8%) resulting in after tax return on assets that is at median.
Financial leverage (leverage) is at the upper quartile (4.01X).

GROWTH RATES

Overall, Rogers Communications’ growth rate has slowed considerably in recent years.
Rogers Communications’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.

Annual revenue growth has been -0.1% per year.

Total asset growth has been 4.8% per year. (More recently it has been 1.7%.)

Annual E.P.S. growth has been -0.4% per year. (More recently it has been 37.1%.)

Equity growth has been 5.5% per year. (More recently it has been 16.5%.)

Rogers Communications’ consensus growth rate forecast (average of Wall Street analysts) is 4.8% — in line with the average of the historical growth measures.
out_growthgrf#04022.jpg

Relative to the Rogers Communications Inc Peer Group, Rogers Comm’s historical growth measures are generally third quartile. Equity growth (5.5%) has been above median. Total asset growth (4.8%) has been slightly below median. Revenue growth (-0.1%) has been below median. E.P.S. growth (-0.4%) has been below median.

Consistent with this pattern, consensus growth forecast (4.8%) is also below median.
out_growthgrf.2#04022.jpg

PRICE HISTORY

Over the full time period, Rogers Communications’ stock price performance has been below market. Between September, 2008 and July, 2019, Rogers Communications’ stock price rose +62%; relative to the market, this was a -37% loss. Significant price moves during the period: 1) March, 2015 – February, 2019: +65%; and 2) March, 2009 – March, 2013: +124%.
out_price#04022.jpg

TOTAL INVESTMENT RETURNS

Current annual total return performance of 16.0% is above median relative to the S&P 500 Composite.
In addition to being above median relative to S&P 500 Composite, current annual total return performance through June, 2019 of 16.0% is slightly above median relative to Rogers Communications Inc Peer Group.

Current 5-year total return performance of 9.6% is slightly below median relative to the S&P 500 Composite.
Through June, 2019, with slightly below median current 5-year total return of 9.6% relative to S&P 500 Composite, Rogers Comm’s total return performance is upper quartile relative to Rogers Communications Inc Peer Group.
out_quartret#04022.jpg

VALUATION BENCHMARKS

Relative to S&P 500 Composite, RCI’s overall valuation is normal. The highest factor, the price/equity ratio, is slightly above median. Ratio of enterprise value/revenue is slightly below median. Ratio of enterprise value/assets is slightly below median. Ratio of enterprise value/earnings before interest and taxes is near the lower quartile. The lowest factor, the price/earnings ratio, is near the lower quartile.
out_tradv#04022.jpg

Rogers Comm has no value gap compared to the median. For RCI to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 3.07X to 3.05X. If RCI’s ratio of enterprise value/revenue were to fall to 3.05X, its stock price would be lower by $-0 to $53.
For RCI to achieve upper quartile valuation relative to the Rogers Communications Inc Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 3.07X to 3.48X. If RCI’s ratio of enterprise value/revenue were to rise to 3.48X, its stock price would increase by $12 from the current level of $54.

VALUE TARGETS

RCI is expected to continue to be a major Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Rogers Communications’ current Price Target of $55 is little changed from the current price of $53.75.
This moderately low appreciation potential results in an appreciation score of 38 (62% of the universe has greater appreciation potential.)
Reinforcing this moderately low Appreciation Score of 38, the neutral Power Rating of 44 contributes to an Value Trend Rating of D.
out_vc#04022.jpg

Rogers Communications’ current Price Target is $55 (+56% from the 2018 Target of $35 and +2% from the 07/10/19 price of $53.75). This dramatic rise in the Target is the result of a +2% increase in the equity base and a +53% increase in the price/equity multiple. The forecasted increase in growth has a very large positive impact on the price/equity multiple and the forecasted increase in return on equity has a large positive impact as well. Partially offsetting these Drivers, the forecasted increase in cost of equity has a slight negative impact.
out_wc.1#04022.jpg
out_wc.2#04022.jpg

PTR’s return on equity forecast is 29.9% — above our recent forecasts. Forecasted return on equity suffered a dramatic, variable decline between 2010 and 2018. The current forecast is significantly below the 2011 peak of 44%.

PTR’s growth forecast is 4.0% — slightly above our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2010 and 2018. The current forecast is well below the 2012 peak of 11%.

PTR’s cost of equity forecast is 10.2% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, steady decline between 2010 and 2018. The current forecast is steady at the 2010 peak of 11.0%.
out_vc.2#04022.jpg
At Rogers Communications’ current price of $53.75, investors are placing a positive value of $13 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 26.4% versus a cost of equity of 9.6%.
PTR’s 2020 Price Target of $55 is based on these forecasts and reflects an estimated value of existing assets of $38 and a value of future investments of $16.

About John Lafferty 54938 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

Be the first to comment

Leave a Reply

Your email address will not be published.


*


This site uses Akismet to reduce spam. Learn how your comment data is processed.