After an Ugly Week, Is Rogers Communications a Buy?

Rogers will need to improve customers satisfaction, and rely less on promotional pricing, to improve its lack-luster stock performance.

| More on:
The Motley Fool

During this past week, Rogers Communications (TSX: RCI.B)(NYSE: RCI) lost nearly 5.0% of its value. In 2013, its stock gained just 5%, three percentage points less than the S&P/TSX Composite Index (TSX: ^OSPTX). And so far this year, Rogers is down just over 11%.

Established by Ted Rogers in 1960, the company has grown into a media and communications powerhouse active in wireless, cable, internet, home phone, media, and sports. Despite the breadth of services, the wireless business drives its fortunes — accounting for nearly 60% of revenue and 70% of earnings before interest, taxes, depreciation, and amortization, or EBITDA.

With the recent sell-off, is now a good time to consider purchasing stock, or does Rogers have further to fall? Or maybe it’s best just to steer clear. Let’s take a look at three key issues driving Rogers’ performance

Not everyone likes surprises

Unlike kids at Christmas time, investors and financial analysts do not like surprises. Unfortunately, that’s what they’ve received lately from Rogers.

Rogers reported earnings per share, total earnings or net income divided by shares outstanding, which missed analysts’ expectations by about 7% during each of the last two quarters. In fact, Rogers hasn’t exceeded expectations on earnings for over a year. Until management can meet, and exceed, earnings expectations consistently, it’s unlikely its share price will make any meaningful gains.

Wireless customers are disconnecting 

During the first quarter, Rogers added 369,000 new wireless customers, 68,000 fewer than the first quarter of 2013. And when you take into account customer departures, Rogers actually ended the first quarter with 71,000 fewer customers than it had at the beginning of the period.

Even more concerning is the reduction in average revenue per user which declined more than 3% during Rogers most recent quarter. Customers incurred lower roaming fees, and opted for simplified pricing plans that lowered their overall costs by including items like voice-mail and caller ID at a discount.

No quick fixes

Guy Laurence, the newly appointed President and Chief Executive Officer of Rogers has completed his meetings with various stakeholders, and is expected to present his plan for improving the company’s fortunes in the next month.

However, early indications are that there are no “quick fixes” and measures required to improve customer satisfaction and reduce defections will require patience and long-term structural change.

Foolish bottom line

Many investors are attracted to Rogers Communications attractive dividend yield of 4.2%. However, improving customer satisfaction is key to lowering defections, increasing average revenue per wireless customer and pushing the stock price higher. Unfortunately for Rogers, it takes a great deal of time to make meaningful and sustained changes in the area of customer satisfaction. And without it, price discounting and incentives are what a company must do to attract new clients, and keep existing customers.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Justin K Lacey has no positions in any of the stocks mentioned in this article.

More on Investing

A bull outlined against a field

After Earnings, I’m Bullish on These 2 TSX Stocks

Given their solid performances and healthy growth prospects, I am bullish on these two TSX stocks.

Read more »

Woman has an idea
Bank Stocks

3 No Brainer Bank Stocks to Buy Now for Less Than $1,000

Canadian bank stocks like Toronto-Dominion Bank (TSX:TD) appear quite cheap today.

Read more »

Dividend Stocks

Where Will Canadian Utilities Stock Be in 5 Years?

Canadian Utilities (TSX:CSU) is a classic example of a stock where the dividend is all you get. Can the company…

Read more »

Man holding magnifying glass over a document
Dividend Stocks

2 Stocks I’m Watching for Big Passive Income

Consider Bank of Nova Scotia (TSX:BNS) and another top passive-income play to power your dividend portfolio!

Read more »

Target. Stand out from the crowd
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These top TSX stocks have increased their dividends annually for decades.

Read more »

question marks written reminders tickets
Dividend Stocks

Better Buy: Loblaw Companies or Metro Stock?

Loblaw Companies (TSX:L) stock is riding on recent momentum. Meanwhile, Metro (TSX:MRU) is executing for future earnings growth.

Read more »

bulb idea thinking
Dividend Stocks

2 Supercharged Dividend Stocks to Buy if There’s a Stock Market Sell-Off

These two top stocks offer attractive yields, have reliable operations and are dividend aristocrats, making them two of the best…

Read more »

Dividend Stocks

Got $1,000? Buy These Hot Growth Stocks Before They Take Off

These growth stocks just reported earnings that should have investors eager for more over the next year and beyond. They're…

Read more »