Rogers Communications Inc. Tops Q3 Estimates: Should You Buy Now?

Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI) announced third-quarter earnings on October 22, and its stock has reacted by rising over 2%. Is now the time to buy?

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Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI), one of Canada’s largest diversified communications and media companies, announced better-than-expected third-quarter earnings results on the morning of October 22, and its stock has responded by rising over 2%. Let’s take a closer look at the results to determine if this could be the start of a sustained rally higher and if we should initiate positions today.

Surpassing analysts’ expectations with ease

Here’s a summary of Rogers’s third-quarter earnings results compared with what analysts had expected and its results in the same period a year ago.

Metric Q3 2015 Actual Q3 2015 Expected Q3 2014 Actual
Adjusted earnings per share $0.92 $0.82 $0.79
Operating revenue $3.38 billion $3.32 billion $3.25 billion

 Source: Financial Times

Rogers’s adjusted earnings per share increased 16.5% and its revenue increased 4.1% compared with the third quarter of fiscal 2014. The company’s double-digit earnings-per-share growth can be attributed to its adjusted net income increasing 16.5% to $472 million, helped by its operating expenses increasing just 0.3% to $2.8 billion.

Its very strong revenue growth can be attributed to its revenues increasing 4.9% to $1.97 billion in its wireless segment primarily as a result of “greater smartphone sales and higher network revenue” from its wireless plans, and its revenue increasing 7.5% to $473 million in its media segment primarily as a result of growth at Sportsnet and the Toronto Blue Jays.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

  1. Revenues increased 0.8% to $871 million in its cable segment
  2. Revenues decreased 2.1% to $94 million in its business solutions segment
  3. Total postpaid wireless subscribers increased 1.3% to 8.24 million
  4. Total prepaid wireless subscribers increased 15.6% to 1.58 million
  5. Total Internet subscribers increased 1.7% to 2.03 million
  6. Total television subscribers decreased 6.1% to 1.92 million
  7. Total phone subscribers decreased 4.5% to 1.11 million
  8. Adjusted operating profit increased 2.5% to $1.35 billion
  9. Cash provided by operating activities increased 37.7% to $1.46 billion
  10. Free cash flow increased 78.4% to $660 million

Rogers also announced that it will be maintaining its quarterly dividend of $0.48 per share, and the next payment will come on January 4 to shareholders of record at the close of business on December 11.

What should you do with Rogers today?

It was a phenomenal quarter overall for Rogers, so I think its stock has responded correctly by moving higher. I also think this could be the start of a sustained rally much higher, because its stock still trades at inexpensive forward valuations and because it is both a high dividend and dividend-growth play, which will continue to attract investors.

First, Rogers’s stock trades at just 17.7 times fiscal 2015’s estimated earnings per share of $2.88 and only 17.1 times fiscal 2016’s estimated earnings per share of $2.99, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 20.8 and its industry average multiple of 28.3.

I think Rogers’s stock could consistently trade at a fair multiple of at least 20, which would place its shares upwards of $59.75 by the conclusion of fiscal 2016, representing upside of more than 17% from today’s levels.

Second, Rogers pays an annual dividend of $1.92 per share, which gives its stock a very generous 3.8% yield. It is also very important to note the company has raised its dividend for 10 consecutive years, and its increased amount of free cash flow, including 20.1% year-over-year growth to $1.4 billion in the first nine months of fiscal 2015, could allow this streak to continue in 2016.

With all of the information provided above in mind, I think Rogers Communications represents one of the best long-term investment opportunities in the market today. All Foolish investors should strongly consider beginning to scale in to positions.

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 Joseph Solitro has no position in any stocks mentioned. The Motley Fool owns shares of ROGERS COMMUNICATIONS INC. CL B NV. Rogers Communications Inc. is a recommendation of Stock Advisor Canada.

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