Rogers Drops 16%, Shaw Merger Synergies Hit C$1B Early

Key Takeaway

• Rogers Communications Inc. stock dropped 16% this year, yet analysts see it as a buying opportunity due to easing competition risks.
• Achieved C$1 billion in cost synergies from Shaw merger ahead of schedule, signaling operational efficiency and strategic success.
• Despite challenges in cable division, potential market rally catalysts include lower bond yields and reduced wireless pricing competition.

Market Performance and Analyst Perspectives

Rogers Communications Inc., Canada's largest wireless company, has experienced a significant decline in its stock value, dropping 16% this year. This downturn marks the most substantial decrease among the nation's five major telecom stocks, underperforming the S&P/TSX Composite Index by 20 percentage points. Despite this, analysts from RBC Capital Markets and National Bank of Canada view the current situation as an opportunity for investors. Drew McReynolds of RBC Capital Markets highlights the easing of competition risks and considers the current stock price an attractive entry point. Following Rogers' recent earnings report, the company's stock hit its lowest level since October 31 at C$52, yet McReynolds sees potential for improvement, especially in the wireless and cable sectors.

Achieving Cost Synergies

Rogers' executives have announced the achievement of C$1 billion in cost synergies from the merger with Shaw Communications Inc., reaching this milestone a year ahead of schedule. This development is seen as a transition into a new phase for Rogers, with expectations for continued success in its wireless unit and improvements in its cable business. The early realization of these synergies was anticipated by management and communicated to investors, aligning with the company's strategic goals for post-merger integration and operational efficiency.

Investor Reactions and Guidance

The stock's pullback by 3.3% following the announcement of quarterly results has left some investors questioning why Rogers did not adjust its guidance upwards. Adam Shine from National Bank of Canada points out that the 2024 outlook had been provided at the beginning of February, suggesting that expectations for an immediate update were misplaced. Management had previously indicated that the synergy target would likely be met around the first quarter, aligning with the actual outcome.

Challenges and Potential Catalysts

Rogers faces challenges in expanding its cable division beyond the acquisitions from Shaw, with an organic revenue decline of at least 3% as per National Bank's analysis. However, Vince Valentini of TD Securities notes the overall bearish sentiment towards telecom stocks but suggests that much of the negative news is already reflected in current prices. He identifies lower bond yields and a reduction in aggressive wireless pricing competition as potential catalysts for a market rally, indicating possible positive shifts for Rogers and the telecom sector at large.

Street Views

• Drew McReynolds, RBC Capital Markets (Bullish on Rogers Communications):

  "An attractive entry point for Rogers shares."

• Adam Shine, National Bank of Canada (Neutral on Rogers Communications):

  "The 2024 outlook was just given at the start of February, so no quick update should have been expected."

• Vince Valentini, TD Securities (Cautiously Optimistic on telecom stocks including Rogers Communications):

  "A lot of the bad news has been priced in. Lower bond yields and less aggressive competitive wireless pricing are potential catalysts for a relief rally."