Investments In 5G And MLSE Acquisition Will Strengthen Competitive Edge

Key Takeaways

• Strategic investments in network technology and infrastructure are bolstering competitive advantages and supporting subscriber growth, boosting revenue and margin stability.
  
• Acquiring MLSE and infrastructure initiatives are reducing debt and strengthening finances, enhancing earnings through revenue growth and lower interest expenses.
  
• Economic policies and competitive pressures challenge Rogers' revenue growth, with uncertainties impacting financial stability and future market prospects.

Catalysts

Operates as a communications and media company in Canada.

• The acquisition of the remaining stake in Maple Leaf Sports and Entertainment (MLSE) is expected to drive long-term growth and unlock additional value from sports and media assets, likely enhancing revenue and future earnings.
  
• Investments in network infrastructure and technology, such as the rollout of DOCSIS 4.0 and the most reliable 5G network, are expected to sustain competitive advantages and subscriber growth, supporting revenue and margin stability.
  
• The structured equity investment to sell a minority stake in wireless backhaul infrastructure is expected to reduce debt and strengthen the balance sheet, indirectly supporting earnings by lowering interest expenses and maintaining investment-grade ratings.
  
• The introduction of new services, such as the Rogers Xfinity app, and advancements like 5G network slicing and satellite to mobile technology, are designed to enhance product offerings and customer value proposition, anticipated to positively impact revenue and EBITDA growth.
  
• Continued strong performance in the Cable segment, with increased market share and EBITDA growth due to efficiency improvements and technological enhancements, is expected to drive future revenue and margin expansion.

Rogers Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rogers Communications's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.4% today to 11.4% in 3 years time.
• Analysts expect earnings to reach CA$2.5 billion (and earnings per share of CA$5.15) by about March 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$1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.5x on those 2028 earnings, up from 12.7x today. This future PE is greater than the current PE for the CA Wireless Telecom industry at 12.7x.
• 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 7.38%, as per the Simply Wall St company report.

Rogers Communications Future Earnings Per Share Growth

Risks

• The company's growth in wireless service revenue is being slowed by government policies that decrease the size of the new to Canada market, impacting potential future revenue growth.
  
• The advertising market was softer than anticipated, which could lead to continued challenges in maintaining media revenue growth and affecting overall earnings.
  
• Delays and uncertainties surrounding the structured equity investment proposal and MLSE transaction introduce risks to balance sheet improvement, potentially affecting financial stability and net margins.
  
• A competitive environment with aggressive promotions may pressure ARPU, potentially leading to revenue impact if Rogers cannot differentiate its offerings effectively.
  
• Economic uncertainties, such as changes in immigration levels and potential new government policies, could further affect market growth and financial projections, impacting revenue outlooks.

Valuation

• The analysts have a consensus price target of CA$56.294 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$79.0, and the most bearish reporting a price target of just CA$39.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$22.0 billion, earnings will come to CA$2.5 billion, and it would be trading on a PE ratio of 15.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of CA$40.95, the analyst price target of CA$56.29 is 27.3% 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.