The boost telecommunications companies will get from the boom in 5G is going to be like nothing we’ve ever seen before. I think there’s nearly universal agreement on this.
Yet telecom stocks have not seen the rapid rise many have expected of late. Here’s why Rogers Communications (TSX: RCI.B)(NYSE: RCI) still makes my list of top 5G picks for the coming years right now.
Robust growth trajectory
Drew McReynolds, an analyst at RBC Dominion Securities, seems to like the outlook for the Canadian telecom space over the next couple years. Indeed, there’s a strong growth thesis with telecom players like Rogers given the 5G growth backdrop of this sector.
Plus, Rogers has shown strong growth within its core wireless and cable businesses. These propelled strong earnings growth in recent quarters, despite a pandemic which crippled other sectors.
Rogers reported revenues of $2.8 billion in Q1, blowing away analyst projections. This sort of outperformance ought to pique the interest of investors who may have been sitting on the sidelines in recent months.
There’s consensus starting to build that the telecom space will be a faster-growth segment than it has in the past. Rogers has tons of growth potential in its core businesses, and the company’s 5G rollout only strengthens this argument.
Moreover, investors continue to be bullish on Rogers’s cost-efficiency endeavours in recent years. Margins remain strong, and there’s renewed anticipation that 5G could further bolster margins in the telecom space.
And, of course, there’s that other catalyst investors are keeping a close eye on today…
The Roger-Shaw Deal
Rogers’s acquisition bid to acquire Shaw Communications is a big deal, not only in terms of its price tag.
If this deal goes through, the new Rogers would be a force to be reckoned with. Market share is everything in the telecom space, and Rogers already has a prime position. However, this deal stands to bolster the company’s presence in Western Canada, where Rogers’s market share is lower.
Now, there’s that pesky issue of regulatory overhang. There’s some likelihood the deal may fall through. However, in this regard, analysts seem to be fairly confident that Rogers will be able to work a deal out with regulators. Thus, some analysts suggest there’s a 90% likelihood this deal passes regulatory scrutiny.
That’s pretty high. Accordingly, now may be the time to assess Rogers not on its own but as a combination of the two telecom players. And in that regard, the picture looks brighter than ever for Rogers today.
Bottom line
As far as telecom players go, Rogers is a great stock to own for its existing businesses. However, I think the growth this company will see as a result of the 5G rollout makes this an enticing stock today.
For patient investors, waiting out any near-term volatility tied to the Shaw deal while being paid a handsome 3.3% dividend yield sounds like a good deal to me.
