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Buoyed by better-than-expected results from its cable and home phone operations, Shaw Communications Inc. (NYSE:SJR) surprised investors with a strong third quarter. The results, reported last week, boosted Shaw's stock which was up up 2.4% on Friday, and an additional 5% on Monday trading on the Toronto Stock Exchange to close at C$20.85

With 18% EBITDA growth and an increased dividend from C$0.72 to C$0.80, analysts now cast an eye to Shaw's moves in developing a wireless service with the expected purchase of spectrum following the conclusion of Industry Canada's auction.

Although Shaw has now bid C$206.7-million for 23 licenses in western Canada, there is still room for its dividend to grow, said RBC Capital Markets telecom analyst Jonathan Allen, who continues to maintain an “outperform” rating on the stock but downgraded his price target from C$31 to C$27.

Mr. Allen said:

 

We estimate that between 2008 to 2012, Shaw will generate C$1.35-billion of free cash flow after dividends and including out higher estimate for cash taxes starting in 2009.

This compares with an estimated wireless investment (spectrum, network and start-up losses) of C$600-million over the same period. In our view, Shaw therefore has more than enough flexibility to continue growing dividends and cash flow.

 

The argument was echoed by Canaccord Adams analyst David Lambert, who, in a recent note to clients, wrote that Shaw's current operating momentum could offset the short-term impact of its new wireless division as its free cash flow expecting to grow in excess of 20% during the current fiscal year to C$549.2-million.

Mr. Lambert said:

 

Note that the board approved a dividend increases of 11% to C$0.80 per annum (4.0% yield), demonstrating their confidence in the company's ability to continue to generate strong free cash flow despite its intention to create a new wireless service. 

 

He who maintained his "buy" rating and C$29 price target on Shaw's stock.

Source: Shaw Communications: Shares Up on Good 3Q Results