Buy Shares Of Rogers Communications And Own Its Undervalued Sports And Media Segment

| About: Rogers Communications (RCI)

While writing my recent published article discussing Madison Square Garden (NASDAQ:MSG) and the ability to purchase ownership of a sports team, another option happened overnight in Rogers Communications (NYSE:RCI). With its purchase of 37.5% of Maple Leaf Sports Entertainment, the publicly traded Canadian telecommunications company now owns a professional hockey team (Toronto Maple Leafs), professional basketball team (Toronto Raptors), and professional baseball team (already owned Toronto Blue Jays). The company also owns two large arenas in Toronto, Rogers Centre and the Air Canada Centre. Along with the ownership of the professional teams, Rogers will also partially own the Toronto FC soccer team and the Toronto Marlies minor league hockey team. Today I break down the segments of Rogers Communication to try and get a better picture of whether or not Rogers Communications is a good investment.

The purchase of 37.5% of Maple Leaf Sports Entertainment by Rogers also comes with two other owners. Rival Bell Canada (NYSE:BCE) will also own 37.5% of the Maple Leafs and coincidentally also owns a minority stake in the NHL’s Montreal Canadiens. Maple Leaf Sports Entertainment Chairman Larry Tanenbaum purchased an additional 4.5% of MLSE and will now own 25% of Maple Leaf Sports Entertainment. The near 80% stake was offloaded by the Ontario Teachers' Pension Plan for $1.32 billion.

Rogers Communications will now offer a similar trading option for sports fans who want to own a professional sports team. The company also owns several TV stations which broadcast its teams' events. Where the company differs from Madison Square Garden is its wireless and cable television units.

Rogers Communications is the largest cable television provider in Canada. The company also serves as the largest wireless communications provider throughout Canada. In its wireless unit it offers two of the most popular smart phones: Apple’s (NASDAQ:AAPL) iPhone and the Samsung Tab. Rogers was the first Canadian company to offer the iPhone for purchase and subscription packages. Along with the iPhone and Tab it also offers Blackberry products from Canadian company Research in Motion (RIMM) and Android phones (NASDAQ:GOOG) from various phone makers. Fido products from Rogers' wireless unit are also offered in Wal Mart (NYSE:WMT) and Best Buy (NYSE:BBY) stores. At the end of 2010 Rogers had over nine million customers for its wireless phone service. Rogers also owns a media unit which consists of over 70 publications, over 50 radio stations, and a collection of television stations.

Rogers Communications operates in three business segments: Wireless, Cable, and Media. In the 2010 annual report Rogers reported the revenue by segment as: Wireless (56%), Cable (32%) and Media (12%). Rogers was responsible for $12.2 billion in annual revenue for fiscal 2010. The previous two years came in at $11.3 billion (2008) and $11.7 billion (2009). The company earned a profit of $4.7 billion for the last fiscal year.

The media unit is responsible for the sports teams and arenas owned by Rogers Communications and is the smallest unit in terms of revenue and profits for the company. Along with airing Maple Leaf games on its cable networks, Rogers Communications previously had deals with the Vancouver Canucks, Edmonton Oilers, and Calgary Flames and with its new ownership deal will have four NHL teams to broadcast on its cable channel library.

A new unit is being developed in the home monitoring segment which I believe is not being priced into shares. The company has several exciting models in beta testing that will offer customers the ability to control their thermostat, security cameras, appliances, and lighting by their smart phone. This introductory segment offers extreme potential in a growing field of smart phone applications. Rogers has the advantage of already having a large base of customers across its wireless and cable television units to cross promote this unit to. I will be watching the earnings conference calls to hear more about the exciting prospects of this new segment.

With the recent ownership stake in MLSE, the company's sports and media segment will now contain:

Toronto Blue Jays-100% Ownership

The Toronto Blue Jays were acquired by Rogers Communications in 2000 to diversify its television offerings by controlling the television rights to Blue Jays games. The Blue Jays averaged 22,445 fans per contest during the 2011 MLB season. This was 25th in the league as far as number of fans but ranked them dead last at 45.6% of capacity for each contest. An improvement on their 81-81 record from last year could help put fans back in seats. The Blue Jays have not been in the MLB playoffs since 1993.

Toronto Maple Leafs-37.5% Ownership

Forbes recently listed the Maple Leafs as the most valuable NHL franchise with a valuation of $521 million. The team is responsible for $81.8 million in operating income in its last fiscal year. Through fourteen home games this season the Maple Leafs are averaging 19,498 fans per game which is three percent above listed capacity and good for fifth in the league. The Maple Leafs have a 16-11-3 record through their first 30 games of the 2011-2012 season and are in the playoff picture in the sixth spot past the first third of the season. The Maple Leafs missed out on the playoffs last year and have not been to the post season since the 2003-2004 season. An appearance in the post-season this year would guarantee two home games and increase revenue in the media segment for Rogers Communications.

Toronto Raptors-37.5% Ownership

For the 2010-2011 NBA season the Raptors averaged 16,566 fans per home game. This was good for 19th place in the league. The Raptors had a horrible season during 2010-2011 with a record of 22-60. Any improvement on their team this year could impact attendance which was below 90% of capacity last season. Since their expansion in 1999 the Raptors have made the postseason five times, with the last being in 2008. The Raptors were valued at $399 million by Forbes in 2010 and were responsible for $25 million in operating income.

Toronto FC-37.5% Ownership

Toronto FC began playing in MLS (Major League Soccer) as an expansion team in 2007. The team has been profitable every year since its inception. The team has never qualified for the MLS Playoffs but has had recent success in the Canadian Championship which it has won three straight times and its recent qualification for the CONCACAF Champions League. Since 2007, the team has consistently averaged over 20,000 fans per contest and the team is talking of expanding its seating capacity.

Air Canada Centre-37.5% Ownership

The Air Canada Centre opened to the public in 1999. It now serves as the home to the Toronto Maple Leafs, Toronto Raptors, and professional lacrosse team Toronto Rock. The seating capacity for basketball games and most concerts is 19,800. NHL games can seat up to 18,800 fans. The arena has 113 suites and also 40 platinum lounges. Three restaurants, two full size bars, and an on-site brewery help to increase sales during events held at the arena.

Rogers Centre-100% Ownership

Originally known as the Skydome, Rogers Communications purchased this Canadian landmark ballpark in 2004 and later renamed it after its company in 2005. Rogers Centre will host over 8,000 athletes as part of the 2015 Pan-American games. The baseball stadium has also hosted one Buffalo Bills NFL game each season since 2008 and will host another one next season. It will be interesting to see if the team will renew the contract on this recent five year deal or if it could lead to a NFL team eventually playing in Canada. The Rogers Centre also is home to the Canadian Football League’s Toronto Argonauts. The team is the most successful in CFL history winning fifteen Grey Cups throughout its history. The stadium recently hosted the Ultimate Fighting Championship in 2011 and hosted over 55,000 fans, which broke UFC attendance records.

Toronto Marlies-37.5% Ownership

The Marlies serve as the affiliate minor league hockey team of the Maple Leafs and are currently the only affiliate to play in the same city as their parent team. The Marlies sit in first place in their division, and second in the conference with a 15-7-3-1 record. The team plays their home games at the Ricoh Coliseum, owned by the city of Toronto.

Rogers Communications is a $19 billion company by market capitalization. It is the second largest telecommunications company in Canada, behind Bell Canada. Unlike shares of Madison Square Garden, Rogers has paid a dividend since 2000. The dividend was initially paid on an annual basis but since 2007 has been paid quarterly. A current rate of $0.35 per quarter offers a near 4% dividend yield and a great source of growing income from this large telecommunications player.

Shares trade at $35.84 at the time of writing this article. Over the last fifty two weeks shares have traded in a range of $32.27 to $40.69. Shares hit their fifty two week low recently in October likely from the NBA lockout talks negatively impacting shares.

Earnings estimates for current fiscal year call for $3.14 making shares trade at current price earnings of 11. Next year analysts are estimating Rogers will earn $3.30 per share which makes shares appear even cheaper with a price earnings ratio of just over 10. The company has bested analysts' earnings each of the last three reported quarters by $0.05, $0.03, and $0.07 respectively.

Rogers is a member of the NYSE Composite Index and also has inclusion in several other indexes including: NYSE International 100 Index, and the NYSE World Leaders. The stock is a top ten holding of several mutual funds owned by Gamco, Gabelli, and Quaker. The exchange traded fund SPDR S&P International Telecom (NYSEARCA:IST) also has Rogers as a core holding.

Along with Bell Canada, Rogers' main competitors are Shaw Communications (NYSE:SJR) and TELUS Corporation (NYSE:TU). Both of these companies operate in the Canadian telecommunication industry. Among competitors in the sports industry Madison Square Garden (MSG) and Comcast (NASDAQ:CMCSA) serve as competitors with their ownership in competing sports teams.

While I prefer Madison Square Garden shares on a trading basis due to their higher valued teams and arena and the prospects of an amazing transforming year, it is hard not to see the amazing bargain price of Rogers Communications. While this article looks at the comparison of Rogers as a sports ownership company it is important to remember that Madison Square Garden is a pure play sports company and Rogers operates as a telecommunications company with a sports segment. Purely as a public company, Rogers offers the better investment. Rogers Communications trades at a cheaper price to earnings ratio and has a dividend yield of 4%. Here are my top reasons for owning Rogers Communications:

1. Playoffs – The owned sports teams of the company have droughts of missed playoff trips in their respective sports. A trip by any of them to the postseason would create home playoff games and spur attendance and merchandise sales.

2. Home Monitoring – As mentioned above I believe the future potential of this new segment has not been priced in. Since the unit is in beta testing, investors have the chance to get into this stock before the company sees the true potential of revenue from its smart phone application.

3. Attendance – The increase of attendance for the sports teams could help the media segment make up a bigger percentage of operating income for the company and in turn boost earnings per share.

4. History of Beating Earnings – As mentioned above the company has bested analysts' targeted earnings numbers three straight quarters. Another beat by the company or a raised guidance for next year could send shares up to a fifty two week high.

5. Dividend – While many telecommunications companies pay out a portion of their earnings each year in the form of a dividend, Rogers is currently paying out 48% of its profit and has the potential to continually raise the dividend.

Even though I am not a fan of Toronto or New York sports teams, it is appealing as a sports fan to look at the companies as an investment and the ability to own a piece of a professional sports team.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MSG, RCI over the next 72 hours.

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