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January 08, 2008
Disappointing Guidance From Rogers
Before the open on Monday, Rogers Communications (RCI) announced 4Q07 subscriber growth below expectations, doubled its dividend, initiated its first ever share repurchase, and reported mixed 2008 guidance. In response, RCI shares fell 6.2%. I decided to hold off on writing up my thoughts until the smoke cleared and following a little defense by a couple of analysts, RCI shares bounce backed by 2.4% on Tuesday even as the market got drubbed in the afternoon.
RCI will be in the penalty box for awhile but despite the disappointing news I think the shares are cheap enough to hold especially given the facts that growth will still be excellent in 2008 on all key financial metrics and management is noted for its conservative guidance.
The problem at RCI is mostly with the 4Q07 wireless subscriber gain of 183,000 which fell 20,000 to 40,000 short of analyst estimates. Guidance for 2008 is a little under most analyst estimates pretty much across the board. RCI management tends to be conservative with guidance and might be more so this year given new entrants to Canadian wireless and stepped up promotional activity from Telus (TU). While the doubling of the dividend is excellent news, it was widely expected and the accompanying share repurchase is pretty small. I suspect management is keeping some powder dry in case it feels the need to respond more vigorously to the competitive wireless landscape in Canada....
....I think RCI shares will be slow to bounce back as they are lacking a positive catalyst. Furthermore, investors will be skeptical of the guidance given the 4Q subscriber shortfall. That said, support should exist in the upper $30s based on 2007 results and 2008 guidance. Growth in revenues, EBITDA, and free cash flow will be solid double digits in 2008 and the balance sheet remains very underleveraged. Support for the shares should also come from Canadian investors needing to reallocate funds from BCE about it goes private later this year. The new healthy dividend yield at RCI will certainly help in this regard.
The bottom line is that I think RCI longs should hold on, weather the storm and add on further weakness. That is what I am going to do at least until quarterly results are fully reported in mid-February.
Posted by Steve Birenberg at January 8, 2008 05:13 PM in RG
S/P BROKE STRONGLY TODAY DOWN BELOW THE 400DAY MOVING AVERAGE AND INTO BEAR MARKET TERRITORY.AT THIS POINT,WHAT WOULD YOU DO WITH HIGH BETA STOCKS WITH EXCELLENT FUNDAMENTALS LIKE MICC,CETV ETC.? WOULD YOU SELL INTO ANY STRENGTH PENDING A MOMENT OR CLARITY BY THE FED?
A bear market is typically described as a 20% decline. I believe we are now 10% down from the summer high on the S&P 500 which is commonly the amount referred to as a correction.
The nature of the market has clearly changed for the worse. That means you should sell strength in trading oriented money. Ask yourself if yu canhandle CETV at $80 in three months if it is $140 in ten months. That should give you your answer.
Personally I think this decline is way overdone relative to the reality of the economy and the ability for corporations outside of finance to produce earnings this year. Based on that I would not sell into strength where I liked the fundamentals. I like CETV's fundamentals. I don;t follow MICC closely enough to say firmly.
Posted by: Steve at January 8, 2008 07:11 PMTHE MARKET SEEMS TO HAVE BROKEN WIDE OPEN TODAY GREAT NEWS IS PERCEIVED AS HORRIBLE NEWS.RECENTLY,MICC HAD A WONDERFUL INCREASE IN NUMBER OF SUBSCRIBERS AND YET TODAY THE STOCK WENT DOWN $8.
DO YOU HAVE ANY IDEA HOW TO DEAL WITH THIS KIND OF MARKET? DO YOU KNOW WHAT IF ANYTHING IS GOING THROUGH BERNANKE'S MIND?
CETV
WENT DOWN NEARLY$7 ON NO BAD NEWS TODAY.THIS MARKET DOES NOT MAKE SENSE.
DO YOU THINK WE SHOULD SELL SOME CETV BECAUSE OF THE RAPID DOWNFALL,OR SHOULD WE HOLD ON TO THE FED EASING ON 1/30/07.IT APPEARS AS IF THERE ARE NO GOOD ANSWERS.
CORRECTION-FED EASING JANUARY30,2008.
Posted by: MP at January 16, 2008 03:05 PMthe asian markets including india got rocked, some losing more than 6% in one day. do you think this portends the possibility of huge losses tomorrow in the indexes?
Posted by: mp at January 21, 2008 04:42 PMUS futures are already trading and show a decline of about 4.5%. Lots depends on whether Asia and Europe dive again tonight. Bloomberg.com has good coverage of overseas markets.
There will be lots of talk of a Fed rate cut and Bush will likely talk again. I'd GUESS that there will be a rally off the lows as the US open approaches due to shot-covering in fear of coordinated action by the Fed, ECB, and Japan. There is clearly panic selling but until it stops there is no bottom. I believe this is way overdone relative to the likely health of the US and world economies but this sort of thing can feed on itself and cause those economies to take another leg down especially when it is the financial system itself that is being questioned. I am not selling into this. In fact, for clients that are very heavy cash I plan to invest part of the reserves on the theory that we will look back on the prices right now (down 5% from Friday) as attractive sometime within the next 6-12 months.
Posted by: Steve at January 21, 2008 05:22 PM