Shaw Communications Inc. (TSX: SJR.B)(NYSE: SJR), one of the largest telecommunications and media companies in Canada, announced first-quarter earnings before the market opened this morning and its stock has responded by falling more than 3%. Let’s take a closer look at the quarterly results to determine if we should consider using this weakness as a long-term buying opportunity or a warning sign to avoid the stock for the time being.
Breaking down the lackluster results
Here’s a summary of Shaw Communication’s first-quarter earnings compared to what analysts had expected and its results in the same period a year ago.
| Metric | Reported | Expected | Year Ago |
| Earnings Per Share | $0.46 | $0.52 | $0.51 |
| Revenue | $1.39 billion | $1.42 billion | $1.36 billion |
Source: Financial Times
Shaw Communication’s earnings per share decreased 9.8% and its revenue increased 2% compared to the first-quarter of fiscal 2014. The weak earnings per share results can be attributed to net income decreasing 7.3% to $227 million, primarily due to higher amortization and an equity loss of a joint venture, and its slight revenue growth can be attributed its recent acquisition of ViaWest Inc., as well as a 6.7% increase in revenue in its Business Network Services segment.
Here’s a breakdown of seven other important statistics and updates from the report:
- Cable video subscribers decreased by 15,591 from the fourth quarter to 1,942,038.
- Satellite video subscribers decreased by 17,980 from the fourth quarter to 862,643.
- Internet subscribers increased by 14,048 from the fourth quarter to 1,944,449.
- Digital phone line subscribers decreased by 599 from the fourth quarter to 1,374,735.
- Operating income before amortization decreased 0.3% to $606 million compared to the year-ago period.
- Operating margin contracted 100 basis points to 43.6% compared to the year-ago period.
- Generated $193 million of free cash flow, an increase of 22.9% from the year-ago period.
Lastly, Shaw Communications announced an 8% increase to its annual dividend to $1.185 per share, which will be paid in monthly installments of $0.09875, and this increase will commence on March 30.
Should you buy shares of Shaw Communications today?
Shaw Communications is one of the leading telecommunication and media companies in Canada, but a slight decrease in the total number of subscribers and increased expenses led it to a disappointing first-quarter performance. The company reported year-over-year declines in net income, earnings per share, and operating profit, as its margins contracted, and its stock has responded to this news by falling over 3%.
Even though I think the decline in Shaw Communications stock is warranted, I also think it represents a great long-term investment opportunity. I think this because the stock trades at favorable forward valuations, including just 16 times fiscal 2015’s estimated earnings per share of $1.88 and just 15.1 times fiscal 2016’s estimated earnings per share of $1.99.
Furthermore, the company now pays an annual dividend of $1.185 per share, which gives its stock a bountiful 3.95% yield at current levels and makes it both a value and dividend play. With all of this information in mind, I think Shaw Communications represents one of the best long-term investment opportunities in the market today.
