Rogers Communications: The Dust Needs to Settle Before Buying

Rogers Communications Inc. (RCI) is still a premium Canadian stock whose product offerings are superior to competitors, but its future does remain unclear, says Dundee Capital Markets analyst Jean-Francois Gagnon.

While it dominates the consumer TV and Internet markets, Rogers' wireless business will be the crystal ball investors need to stare at to figure out the company's future.

As the federal government sets aside wireless spectrum for new entrants in next year's auction, Rogers will begin to see pressure on its wireless pricing and its results should be negatively affected.

Indeed, the company's reliance on its wireless division – which makes up for 70% of its operating profits – will be key to maintaining its growth, Mr. Gagnon says, and investors should look back to the Microcell acquisition as an example of how a new national player can shake up the market.

In a note to clients, Mr. Gagnon wrote:

The Fido saga illustrates perfectly how an addition national player can negatively affect wireless pricing. Even though we still believe Rogers is a great telecom service provider and that it may still enjoy more good financial quarters, we would let the dust settle and wait for its valuation to reflect a more competitive wireless landscape before considering buying the shares.