High-Value Wireless And MLSE Investments Will Secure Future Resilience

Key Takeaways

• Focus on high-value plans and digital investments aligns cost and revenue growth, maintaining profitability despite slower market growth.
  
• Strategic deleveraging and sports investments enhance financial strength, with underestimated value potential in share price.
  
• Increased competition, strategic investment risks, and sector challenges may pressure Rogers Communications' revenue, margins, and financial stability.

Catalysts

Operates as a communications and media company in Canada.

• Rogers' disciplined execution strategy, focusing on high-value Wireless and Internet plans and offering differentiated services, is expected to maintain solid financials amid slower market growth, potentially driving revenue and EBITDA growth.
  
• The company's emphasis on delivering efficiencies, including digital investments to reduce costs, suggests continued improvement in net margins, benefiting profitability as they align cost growth with revenue growth.
  
• Deleveraging the balance sheet remains a priority, with strategic equity transactions and debt repayment reducing leverage to 3.6x, indicating improved financial strength and lower interest expenses, benefiting earnings per share.
  
• Rogers' investment in sports assets, including the acquisition of a majority stake in Maple Leaf Sports & Entertainment (MLSE), is anticipated to enhance revenue and EBITDA, with significant value appreciation potential that is currently underestimated in the share price.
  
• Continued leadership in network reliability, including the development of advanced wireless technology like 5G and Xfinity modem offerings, positions Rogers to attract and retain customers, potentially boosting revenue and market share.

Rogers Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rogers Communications's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 10.9% in 3 years time.
• Analysts expect earnings to reach CA$2.4 billion (and earnings per share of CA$4.9) by about April 2028, up from CA$1.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$3.3 billion in earnings, and the most bearish expecting CA$1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, up from 10.9x today. This future PE is greater than the current PE for the CA Wireless Telecom industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 1.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.59%, as per the Simply Wall St company report.

Rogers Communications Future Earnings Per Share Growth

Risks

• Slower growth in the telecommunications sector due to reduced immigration could impact Rogers Communications’ revenue and EBITDA growth.
  
• Increased competition in the wireless market, as indicated by continued price discounting by competitors, could pressure Rogers' wireless revenue and margins.
  
• The decline in blended mobile phone ARPU, partly due to reduced roaming revenue from decreased travel to the U.S., could negatively affect Rogers’ wireless revenues and net margins.
  
• Challenges in the Cable segment, including declines in service revenue and video subscriber churn, may lead to lower overall cable revenue and impact EBITDA growth.
  
• The execution risk in large strategic investments, such as the MLSE stake, and variations in the capital structure associated with these transactions could impact net margins and the financial stability of Rogers Communications.

Valuation

• The analysts have a consensus price target of CA$52.594 for Rogers Communications based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$69.0, and the most bearish reporting a price target of just CA$35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$21.9 billion, earnings will come to CA$2.4 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of CA$35.12, the analyst price target of CA$52.59 is 33.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.