The Canadian telecommunications industry has long been regarded as a strong sector of the economy. Canadian telecom companies are typically reliable investments that deliver stable returns by providing an essential service that has only become more important with each passing year.
Canada’s telecommunications industry is largely consolidated, and three major providers offer various telecom services to most customers throughout the country. Incorporated in 1960, Rogers Communications (TSX:RCI.B)(NYSE:RCI) is among the three major providers.
Headquartered in Toronto, Rogers Communications services 2.3 million internet subscribers and 10 million wireless subscribers. The $28.81 billion market capitalization telecom giant has not had the best performance in recent weeks.
As of this writing, Rogers Communications stock trades for $56.56 per share, down by 30.04% from its 52-week high. Let’s take a closer look at the stock to see whether it qualifies as an undervalued stock, trading for a massive discount.
Rogers Communications’s woes
Rogers Communications’s decline in recent weeks has not come without reason. The company has been experiencing several challenges that have led to such depressed share prices. A massive network outage forced over 10 million of its customers off the company’s internet and wireless services. The service outage lasted 19 hours, wreaking havoc for millions.
The outage led to banking services being knocked out, forcing several businesses only to accept cash because debit payment services were down. The outage made matters worse for an already shaky acquisition deal. Rogers Communications and Shaw Communications are amid a merger pending an antitrust regulator review.
Regulators looking to nix the deal saw Rogers Communications push back its timeline till the end of 2022. However, the outage has placed more uncertainty on the deal, and there are growing concerns about whether the deal will take place.
Despite its recent troubles, Rogers Communications has a recurring revenue business model that generates solid and defensive cash flows. Several reports also indicate that almost 1% of the stock in Rogers Communications is owned by company insiders, suggesting a positive outlook for the company.
There are also indications that the company is developing something akin to Shaw’s Freedom Mobile unit for $2.85 billion. If the deal turns out to be successful, it could provide Rogers Communications with enough grounds to argue that its acquisition of Shaw Communications will not eliminate competition in Canada’s already consolidated telecom space or result in higher prices for consumers.
Rogers Communications has been hard at work to assure all the concerned parties that the network outage will never happen again. The company has already planned investments of billions of dollars to improve its infrastructure for this purpose. The company’s short-term profitability might take a hit due to the move, but the investment might help restore shaken consumer confidence.
Rogers Communications stock might appear weak, trading for a significant discount from its 52-week high and tackling several issues simultaneously. However, it could turn out to be a good investment at current levels if the company resolves its ongoing issues and its deal to acquire Shaw Communications pulls through