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What Awaits Rogers Communications (RCI) in Q3 Earnings?

Zacks Equity Research

Rogers Communications Inc RCI, the largest integrated telecom operator in Canada, is slated to report third-quarter 2017 results on Oct 19, before the market opens.

Last quarter, the company delivered a positive earnings surprise of 4.23%. Moreover, the company’s earnings beat the Zacks Consensus Estimate in three of the previous four quarters, with an average positive surprise of 3.54%.

The company has given an impressive price performance. Over the past three months, the stock has returned 8.9%, outshining the industry’s decline of 3.4%.



 

When compared with the market at large, the stock’s performance looks outstanding, as the S&P 500 index is pegged at 3.6%, over the same time frame.




 

Let’s see how things are shaping up for this announcement.

Factors at Play

Rogers Communications continues to face tough competition from market incumbents like TELUS Corp TU, BCE Inc BCE and other small regional cable-TV operators in the wireless market of Canada. Moreover, Shaw Communications Inc’s SJR entry into the market with the WIND Mobile acquisition has intensified competition.

Additionally, the company’s media segment remains exposed to persistent softness in the advertising market. Rogers Communications, similar to other cable companies, has lost viewers to online video streaming service providers like Netflix Inc NFLX, Hulu.com, YouTube etc., because of cheap source of TV programming.

On the flip side, we are bullish about Rogers Communications' wireless growth from the roll out of 700 MHz LTE lower block spectrum and the offering of Internet of Things (IoT) as a service to business enterprises. The roll out of lower block spectrum will provide better in-building penetration and rural LTE coverage. The IoT services include End-to-End Incident Management, Farm & Food Monitoring, and Level Monitoring to business enterprises.

The company’s Media arm inked two important deals — one with The Weather Company and an extended deal with Iowa-based media conglomerate company, Meredith Corporation.

We further believe that the company’s plans to dump its Internet Protocol TV (IPTV) platform and adopt Comcast Corp’s CMCSA cloud-based X1 video platform have helped it witness growth in its cable segment in the last-reported quarter. The company’s wireless and cable segment performed favorably with huge wireless and high-speed Internet subscriber gain. In the second quarter of 2017, the company added 93,000 postpaid wireless subscribers and 11,000 high-speed Internet customers. We wait to see if the company succeeds in maintaining this momentum in the to-be reported quarter.

We are also impressed with Rogers Communications’ efforts to reward shareholders with a quarterly dividend of 48 cents per share on each of its outstanding Class B Non-Voting shares and Class A Voting shares, payable on Oct 3, 2017 to shareholders of record on Sep 15, 2017. 

Earnings Whispers

Our proven model does not conclusively show that Rogers Communications is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Rogers Communications has an Earnings ESP of -1.27%. This is because the Most Accurate estimate is at 78 cents while the Zacks Consensus Estimate is pegged at 79 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Rogers Communications has a Zacks Rank #2 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Key Pick

Comcast from the broader Consumer Discretionary sector has the right combination of elements to deliver earnings beat when it reports third-quarter 2017 results on Oct 26. Comcast has an Earnings ESP of +0.13% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Comcast’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 7.77%.

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