With all the buzz created during the months-long wireless spectrum auction, Rogers Communications Inc. (RCI) has seen its stock slide almost 10% on the Toronto Stock Exchange.
But UBS analyst Jeffrey Fan believe the time is right for Rogers' shares to recover as he removes his "short term sell" rating on the stock and upgrades to a "buy."
In a report to clients on Wednesday, Mr. Fan wrote:
We believe investors have gained greater clarity on the new entrants’ strategies and their focus will now shift to Rogers’ upcoming quarterly results and the new entrants’ progress, which should help Rogers’ shares recover.
With upcoming wireless rivals Shaw Communications Inc. and the financial backers from Globalive Communications Corp., Orascom Telecom, providing investors with some clarity on their upcoming business plans, Mr. Fan says those concerns have been largely priced into Rogers' shares during recent declines.
Mr. Fan said:
We believe the new entrants will target primarily prepaid and lower-end subscribers. In addition, the vast majority of Rogers’ higher end subscribers are committed to long-term contracts (2-3 years). As a result, we believe the new entrants’ impact on Rogers is less than what some investors currently fear.
Mr. Fan expects Rogers to report another strong quarter of financial results for the wireless segment driven by data ARPU growth with their continued push of unlimited email and data plans and expects wireless revenue and EBITDA to grow 13% and 19% year-over-year, respectively.
The analyst wrote:
We continue to believe Rogers’ 2008 full year guidance of 8%-13% operating profit growth is conservative, and see upside potential to our wireless estimates through the year. In addition, we expect the launch of the Apple iPhone in July, and BlackBerry devices (we estimate: Bold in August, KickStart in September, and Thunder before year’s end) to continue to drive ARPU growth and subscriber share gain.