Is It Too Late To Buy Rogers Communications?

| About: Rogers Communications (RCI)

Summary

Impressive Q3 2015 earnings could support a rally.

NHL licensing deal is paying off as Canadian fans go crazy for sports.

Rogers is a safe pick going a recession in 2016 but is it too expensive?

Click to enlarge

Rogers Communications (NYSE:RCI) is one of the big three telecom giants in Canada. RCI was one of Canada's best performers in 2015 with an impressive 6% return compared to the TSX which shed -16%. As the Canadian index continues to decline in a bear market, does Rogers still have the ability to outperform the market and deliver impressive returns?

NHL licensing deal is paying dividends

Rogers had a licensing deal with the NHL and the MLB which gave Rogers' media division a huge boost. The NHL deal gave the media division a 18% increase in revenue with a 119% increase in operating profit. Rogers Sportsnet holds exclusive broadcasting rights for many of Canada's NHL games as well as Toronto Blue Jays MLB games. As we know Canadians are crazy for hockey and the proof is in the pudding. The licensing deal for Rogers is paying off shown by a soaring media division which kept Rogers' stock from crashing along with the rest of the Canadian composite. Going forward, there is no question that Canadians are going to continue going crazy for hockey and Rogers Sportsnet is the go to broadcaster as it shows most games for the seven Canadian NHL teams. It is Rogers' exclusive ownership rights to broadcast these games that gives it a steady source of income going forward.

Strong Q3 2015 numbers could support a rally

In Q3 2015, Rogers had a 4% gain in revenue to $3.38 billion compared to Q3 last year. Net income was up nearly 40% to $464 million compared to Q3 2014. These are some very impressive growth numbers and could continue going into 2016. Wireless operating revenues increased 5% to $1.97 billion. The media segment revenue increased 8% to $473 million in Q3 2015. These are very impressive numbers for both the media division and the wireless division. Right now most media stocks are taking a huge hit as cable cutters are becoming a big factor as TV subscriptions decline every year, with most television shows they can be streamed or downloaded. However, in the case of sports people must watch them live and due to this true sports fans would still be willing to pay for sports channel subscriptions. This is a huge advantage that Rogers' media division has compared to any other media stock out there.

Is Rogers a buy in 2016 or has it gotten too expensive?

Rogers soared as high as $54 in 2015 before retreating back to $50. The stock has magnificent media assets that will continue to pay dividends going forward and the wireless division will give Rogers great cash flow from its wireless division that will allow them to pay a fat 3.87% dividend even during the toughest of recessions. When comparing Rogers to its competitors in the Canadian telecom industry it is clear that Rogers is more expensive than the two others in the big three. The current P/E is 18.6 which is higher than its five-year historical average of 14.6. Although Rogers owns great assets it looks like the stock may be too expensive to consider right now. Telus (NYSE:TU) has a much higher dividend of 4.5% and has been oversold in 2015. Telus has a P/E of 15.9, a P/S of 1.9 and P/CF of 6.3 which are all lower than their five-year historical averages of 16.7, 2.0 and 7.5, respectively. Investors who are looking for income and value will do better with Telus. However those looking for some exposure to strong media assets cannot go wrong with Rogers as they own the Blue Jays, Sportsnet and the Rogers Centre in Toronto. Rogers capitalizes on the fact that Canadians are crazy for hockey and that they can't put their cell phones down for a nanosecond. You cannot go wrong with the business, however I would wait until we see at least a 4% dividend yield from Rogers before I recommend buying this. This will probably happen before Q2 2016. Be patient and keep an eye out.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.