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We have upgraded our recommendation to Outperform for Rogers Communications Inc. (NYSE:RCI) following its fourth quarter 2009 financial results, which came ahead of the Zacks Consensus Estimate (see conference call transcript here). Despite facing an extremely challenging economic environment, Rogers performed exceptionally well in 2009, reflecting effective cost controls and an improved churn rate. This enabled the company to generate a double-digit increase in cash flow generation.

Supported by strong free cash flow generation, the company announced a 10% dividend hike, taking the annual dividend from $1.16 to $1.28 per Class A Voting and Class B Non-Voting share. The company also announced a renewal of Rogers' NCIB program for the repurchase of up to $1.5 billion of its Class B non-Voting shares on the open market during the next year.

Estimate Revisions Trend

The overall trend in estimate revisions is quite favorable. Over the last 30 days, four of the 8 analysts covering the stock have raised their estimates for the first quarter 2010, while 2 have revised in the opposite direction. For full fiscal 2010, eight of the 11 analysts covering the stock raised estimates in last 30 days, while 2 analysts decreased it.

Currently the Zacks Consensus Estimate for the first quarter 2010 earnings is 53 cents per share, which would be a substantial improvement over the prior-year quarter earnings of 40 cents per share. However, the current Zacks Consensus Estimate for full fiscal 2010 EPS is $2.45, down 2.39% year over year.

Given the significant upward estimate revisions recently, the Zacks Consensus Estimate for the first quarter 2010 EPS has moved up by 1 cent in the last 30 days and by 2 cents in the last 60 days. For full fiscal 2010 EPS, the Zacks Consensus Estimate moved up by a massive 12 cents in last 30 days and by 13 cents in last 60 days.

These accelerations in Rogers' earnings growth is reflected in its current Zacks #1 Rank ('Strong Buy') and our Outperform recommendation.

With respect to earnings surprises, the company's fairly good track record is expected to persist in the coming quarters. Rogers produced an impressive average earnings surprise of 25.47% in the last four quarters.

Other Positive Factors

Rogers' Wireless operations, which account for more than half of the company's total revenue and 64% of its EBITDA, are well positioned with the lead share (37%) of the attractive Canadian market. Wireless penetration in Canada is little more than 60%, providing significant growth opportunities for the well-positioned Canadian operators. As the only Canadian carrier using GSM – the technology used all across Europe and in many other countries – Rogers is uniquely positioned to capture roaming revenue from foreign visitors.

According to our assessment, deployment of the high-speed HSPA+ wireless network and the DOCSIS 3.0 cable network will sustain future growth of the company. Rogers' cable operations are also growing rapidly, fueled by its triple play packages (cable, telephony and Internet data services). Cable telephony lines increased 13.6% year over year in the reported quarter, which represented 38% of basic cable subscribers and 25% of the homes passed by cable networks.

Source: Expecting Rogers Communications to Outperform

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