3 Reasons Why Rogers Communications Inc. Could Go Even Higher

Rogers Communications Inc.’s (TSX:RCI.B)(NYSE:RCI) stock has risen over 17% in 2015, and it could head even higher from here. Should you buy now?

| More on:

Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI), one of Canada’s largest diversified communications and media companies, has been one of the market’s top performing stocks in 2015, rising over 17% year-to-date and over 16% in the last month, and I think it could go even higher from here. Let’s take a look at three of the primary reasons why I think this will happen and why you should buy the stock today.

1. Its strong third-quarter earnings could support a continued rally

On the morning of October 22, Rogers released better-than-expected third-quarter earnings results. Its stock has responded by rising nearly 7% in the trading sessions since, reaching new all-time highs in the process, and I think the positive sentiment surrounding the results could keep the rally going. Here’s a summary of 10 of the most notable statistics from the third quarter of fiscal 2015 compared with the third quarter of fiscal 2014:

  1. Adjusted net income increased 16.5% to $472 million
  2. Adjusted earnings per share increased 16.5% to $0.92, surpassing analysts’ expectations of $0.82
  3. Revenue increased 4.1% to $3.38 billion, surpassing analysts’ expectations of $3.32 billion
  4. Revenues increased 4.9% to $1.97 billion in its wireless segment
  5. Revenues increased 7.5% to $473 million in its media segment
  6. Revenues increased 0.8% to $871 million in its cable segment
  7. Revenues decreased 2.1% to $94 million in its business solutions segment
  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

2. Its stock trades at inexpensive forward valuations

At today’s levels, Rogers’s stock trades at just 18.1 times fiscal 2015’s estimated earnings per share of $2.93 and only 17.6 times fiscal 2016’s estimated earnings per share of $3.02, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 20 and its industry average multiple of 28.3.

I think Rogers’s stock could consistently command a fair multiple of at least 20, which would place its shares upwards of $60 by the conclusion of fiscal 2016, representing upside of more than 12% from current levels.

3. Its dividend will continue to attract and retain investors

Rogers pays a quarterly dividend of $0.48 per share, or $1.92 per share annually, giving its stock a bountiful 3.6% yield. It has also raised its dividend for 10 consecutive years, and its increased amount of free cash flow, including the aforementioned 78.4% year-over-year increase to $660 million in the third quarter as well as 20.1% year-over-year increase to $1.4 billion in the first nine months of fiscal 2015, could allow this streak to continue in 2016.

Rogers has a high dividend and is a dividend-growth play, which will continue to make it one of the go-to stocks for dividend investors, and this demand will play a major role in driving its shares higher over the long term.

Should you buy Rogers today?

Rogers Communications has been one of the market’s top performing stocks in 2015, and I think it will head even higher from here, because it has the support of very strong third-quarter earnings results, because its stock is trading at inexpensive forward valuations, and because it has a high dividend and is a dividend-growth play, which will continue to attract new investors and retain its current ones. All Foolish investors should strongly consider making Rogers a core holding.

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.

More on Dividend Stocks