Rogers Communications (TSX: RCI.B) jumped 11% last month for reasons that weren’t entirely clear. The company’s most recent earnings release was not exactly a slam dunk win, with small beats on revenue and adjusted earnings per share (EPS), but a miss on reported EPS. In absolute terms, the release was not bad, with positive growth in revenue as well as earnings. However, it was not so good that you’d expect it to trigger a rally in RCI.B shares.
Given the lack of a catalyst, it seems likely that Rogers Communications’s stock’s strong July showing was due to simple market momentum.
North American markets spent much of May, June, and July recovering from a first-quarter beating they took. Donald Trump’s tariff antics shocked investors in April, contributing to a steep selloff in stocks. Momentum in both the U.S. and Canadian markets was bullish for several months after that. Rogers Communications might have simply benefitted from this momentum last month.
The question is whether Rogers Communications stock is a buy today. Fresh off its acquisition of Shaw Communications, the telco is profitable and — by some metrics at least — growing. Compared to other Canadian telcos that are seeing their earnings actively shrink, Rogers is doing well. But is that enough to make it a buy? Let’s find out.
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A best-in-class Canadian telco
Going by recent earnings results and financial performance, Rogers Communications is a best-in-class Canadian telco. In the trailing 12-month period, it delivered the following growth and profitability metrics:
- Revenue growth: 1.87%.
- Operating income growth: 7.5%.
- EPS growth: 71%.
- Free cash flow (FCF) growth: 27.5%.
- Net income margin: 7.3%.
- FCF margin: 12.4%.
- Return on equity (ROE): 14%.
These metrics were much better than the same-period figures from BCE, whose revenues and earnings both declined in the second quarter. They were on par with those that Telus put out for the period; however, Rogers’s long-term compounding track record is better than Telus’s. Considering both recent and long-term performance, Rogers appears to be the best-in-class Canadian telco. That doesn’t mean that the company will retain such distinctions indefinitely. However, in the next section, I’ll explore a plausible reason to think that Rogers will keep up the good work.
An M&A win
One reason to believe that Rogers will continue doing well in the future is its recent merger and acquisition success. In 2021, Rogers announced its intention to purchase Shaw Communications. Some time later, the deal closed, adding new customers and revenue streams to Rogers’s book of business. The deal was technically a little pricey: Rogers paid 26 times earnings for Shaw. However, the deal took some competition out of the picture, which was probably a positive for Rogers.
Modestly valued
Last but not least, Rogers Communications stock is modestly valued, at least going by multiples. At today’s price, it trades at the following:
- 9.3 times earnings.
- 1.2 times sales.
- 2.2 times book.
- 4.2 times cash flow.
Overall, Rogers does not look particularly pricey right now. In fact, it trades at a lower price-to-earnings ratio than BCE does, despite performing much better than that company.
Overall, I’m not interested in investing in Canadian telcos right now, but if I were to invest in one, it would definitely be Rogers. It has the best mix of value and performance out of the Big Three.
