The Motley Fool

Why Rogers Communications Inc. Fell 1.2% on Thursday

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.

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Fool contributor Joseph Solitro has no position in the companies mentioned.

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