Rogers Communications Inc. (TSX:RCI.B)(NYSE:RCI), one of Canada’s largest diversified communications and media companies, announced its third-quarter earnings results and raised its full-year guidance Thursday morning, and its stock responded by falling 1.2% in the day’s trading session. Let’s break down the quarterly results and the fundamentals of its stock to determine if we should be long-term buyers today.
A quality quarterly performance
Here’s a quick breakdown of 10 of the most notable financial statistics from Rogers’s three-month period ended on September 30, 2017, compared with the same period in 2016:
|Metric||Q3 2017||Q3 2016||Change|
|Wireless revenue||$2,138 million||$2,037 million||5.0%|
|Cable revenue||$870 million||$865 million||0.6%|
|Business Solutions revenue||$97 million||$95 million||2.1%|
|Media revenue||$516 million||$533 million||(3.2%)|
|Total revenue||$3,581 million||$3,492 million||2.5%|
|Adjusted operating profit||$1,463 million||$1,385 million||5.6%|
|Adjusted operating margin||40.9%||39.7%||120 basis points|
|Adjusted net income||$523 million||$427 million||22.5%|
|Adjusted basic earnings per share (EPS)||$1.02||$0.83||22.9%|
|Free cash flow||$538 million||$598 million||(10.0%)|
Revised guidance for 2017
As a result of its strong operational performance in the first nine months of 2017, Rogers raised its guidance for full-year 2017 adjusted operating profit growth and net additions to property, plant, and equipment, while its guidance for free cash flow and revenue growth remained unchanged. Here’s a breakdown of the company’s new guidance compared with its previous:
|Metric||Previous Guidance||Updated Guidance|
|Revenue growth||3-5% growth||3-5% growth|
|Adjusted operating profit||2-4% growth||5-6% growth|
|Additions to property, plant, and equipment||$2,250 million||$2,350 million-$2,450 million|
|Free cash flow||2-4% growth||2-4% growth|
What should you do with Rogers’s stock now?
I think it was a strong quarter overall for Rogers, and it posted a great performance in the first nine months of 2017, with its revenue up 3.1% to $10.51 billion, its adjusted operating profit up 5.4% to $4.04 billion, its adjusted basic EPS up 24.4% to $2.65, and its free cash flow up 14.4% to $1.50 billion compared with the same period in 2016.
However, Rogers’s third-quarter results came in mixed compared with analysts’ expectations, which called for adjusted EPS of $0.79 on revenue of $2.9 billion, so I think that’s why the stock posted a small decline in Thursday’s trading session.
With all of this being said, I think Rogers represents a great investment opportunity for long-term investors for two fundamental reasons.
First, it trades at attractive forward valuations. Rogers’s stock now trades at 19.5 times fiscal 2017’s estimated EPS of $3.38 and 17.9 times fiscal 2018’s estimated EPS of $3.70, both of which are inexpensive given its current earnings-growth rate and its estimated 8.4% long-term earnings-growth rate, and the latter of which is inexpensive compared with its five-year average price-to-earnings multiple of 19.8.
Second, it has a great dividend. Rogers pays a quarterly dividend of $0.48 per share, equating to $1.92 per share on an annualized basis, giving it a 2.9% yield. The company also has a history of growing its dividend, including 11 annual increases in the last 13 years, and I think its strong growth of free cash flow, including its projected 2-4% growth in 2017, could allow it to announce a slight dividend increase at some point in 2018.
With all of the information provided above in mind, I think Foolish investors should consider initiating long-term positions in Rogers Communications today.
It's not Apple. Or Google. Verizon or AT&T. In fact, you've probably never even heard this company's name. Yet it's so vital to the "smartphone" revolution that its shares have doubled time and time again since they first hit the shelves. And if industry insiders are right, the rapidly escalating war between iPhone and Android is about to push this stock even higher.
For the full behind-the-scenes story straight from Motley Fool Canada, just click here now.
Fool contributor Joseph Solitro has no position in the companies mentioned.