Rogers Communications (TSX:RCI.B) has been a household name in Canada for years. Yet 2025 could shape up to be a pivotal year for this telecom giant. The company has faced a mix of challenges and opportunities that make its stock an intriguing option for investors seeking long-term value and dividend income. Let’s unpack its recent earnings, past performance, and future outlook to assess where this TSX stalwart stands.
Into earnings
Rogers recently reported quarterly earnings , showcasing modest growth in revenue year-over-year. While revenue for the trailing 12 months reached $20.5 billion, reflecting a slight increase of 0.7%, net income grew to $1.5 billion, translating to diluted earnings per share (EPS) of $2.83. The company’s operating margin remains robust at 27.1%, and its earnings before interest, taxes, depreciation and amortization (EBITDA) hit an impressive $9 billion, underscoring the firm’s ability to generate cash flow. However, total debt of $45.9 billion raises questions about long-term leverage, particularly with a debt-to-equity ratio exceeding 400%.
In terms of stock performance, Rogers stock had a tough year. Currently trading at $40.70, it has found some stability after hitting a low of $39.65. The company’s forward price/earnings (P/E) ratio of 8 suggests a valuation that could appeal to bargain hunters, especially when considering the industry average. Meanwhile, its trailing dividend yield of 5% remains attractive, especially in a market where income is a priority for many investors.
Root of the problem
The company’s challenges are primarily linked to its high debt levels, compounded by slower growth in its wireless segment and stiff competition. The telecom space has been undergoing rapid transformation, with increasing investments required for 5G infrastructure. Rogers’ capital expenditures have been significant as it works to expand its network and meet the growing demand for connectivity. While these investments are critical, they continue to pressure free cash flow. This stood at $2.1 billion in the trailing 12 months.
On the bright side, Rogers stock made strides in growing its customer base, with strong performance in its internet and wireless postpaid segments. The company’s ability to maintain subscriber growth, despite economic uncertainties and competitive pricing pressures, is a testament to its operational efficiency.
Value on deck
From a valuation perspective, Rogers stock appears undervalued when compared to historical multiples and industry peers. Its enterprise value-to-EBITDA ratio of 7.5 is lower than that of peers, indicating the potential for upside if the company can address its debt concerns and return to meaningful growth. Moreover, with a beta of 0.61, RCI stock is less volatile than the broader market, making it a defensive play for risk-averse investors.
Looking ahead, 2025 could be a year of recovery for Rogers stock as the telecom sector stabilizes and 5G adoption becomes more widespread. Analysts expect Rogers to focus on optimizing its cost structure while expanding its offerings in high-growth areas like streaming and digital services. These efforts could help the company enhance its profitability and sustain its dividend, which currently boasts a healthy payout ratio of 70.7%.
The stock’s performance will likely hinge on macroeconomic factors, such as interest rates and consumer spending, given its high debt load. However, with a forward annual dividend rate of $2 per share, investors are compensated for their patience. Long-term holders may also benefit from share price appreciation as Rogers executes its strategic initiatives.
Bottom line
For those considering Rogers stock as an investment, the key takeaway is its resilience. Despite short-term headwinds, the company’s strong market position, consistent cash flow, and attractive valuation make it a compelling choice for income-seeking investors. That said, it’s crucial to keep an eye on its debt levels and the broader competitive landscape, as these could significantly influence the stock’s trajectory in 2025.
All in all, Rogers Communications offers a mix of risks and rewards that align well with a balanced portfolio strategy. With its combination of a high dividend yield, strategic investments in 5G, and undervalued metrics, Rogers stock is worth watching closely this year.
