RCI.B: Margin Improvements And Major League Sports Will Affect Earnings Outlook

Key Takeaways

• Expanded rural wireless coverage and advanced infrastructure investments position Rogers to capture new subscribers and drive growth through innovative services and connectivity.
  
• Cost efficiencies, disciplined deleveraging, and potential sports/media asset monetization support higher earnings, margin improvement, and investment capacity for future opportunities.
  
• Regulatory risks, market saturation, ARPU pressure, high leverage, and ongoing cord-cutting threaten Rogers' long-term revenue growth, profitability, and financial flexibility.

Catalysts

Operates as a communications and media company in Canada.

• Rogers' launch of satellite-to-mobile texting, with a road map to add voice and data services, greatly expands their wireless coverage across rural and remote regions, positioning the company to benefit from rising demand for reliable connectivity and to tap into new subscriber growth opportunities; this is likely to impact future revenue and ARPU positively.
  
• The continued deployment and expansion of 5G and Wi-Fi 7 infrastructure, along with the introduction of advanced services like fixed wireless internet and bundled offerings, allows Rogers to capitalize on increasing mobile data consumption and connected device proliferation, supporting both subscriber additions and higher margins in future periods.
  
• Successful cost efficiency initiatives in Cable-encompassing network integration, reduced capital intensity, and improvements in customer care-are structurally lowering expenses and supporting higher EBITDA margins, setting a foundation for more robust earnings growth as the company scales.
  
• The near-term integration and longer-term monetization of sports/media assets, notably MLSE, remains a significant hidden value driver; proactive moves to surface or monetize these assets could unlock value for shareholders and bolster net earnings.
  
• A disciplined approach to delevering following the Shaw acquisition, demonstrated by the accelerated reduction in leverage and improved free cash flow, enhances Rogers' capacity to invest in future growth trends (like AI-driven services and digital infrastructure) while protecting net margins.

Rogers Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Rogers Communications's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.3% today to 10.4% in 3 years time.
• Analysts expect earnings to reach CA$2.4 billion (and earnings per share of CA$4.61) by about September 2028, up from CA$1.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CA$1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.4x on those 2028 earnings, down from 17.5x today. This future PE is lower than the current PE for the CA Wireless Telecom industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 1.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.91%, as per the Simply Wall St company report.

Rogers Communications Future Earnings Per Share Growth

Risks

• Regulatory uncertainty-particularly the CRTC's recent decision to mandate access for competitors on large networks and the possibility of further government intervention-poses long-term risks of reduced pricing power and potential cuts to capital investment, which could compress revenues and margins.
  
• Slowing growth in wireless subscriber net adds-driven by reduced immigration and overall market maturation-signals that the Canadian wireless market is approaching saturation, limiting Rogers' ability to drive substantial top-line revenue expansion in the long term.
  
• Ongoing ARPU (average revenue per user) pressures, partially caused by intense promotional activity, competitive pricing, the proliferation of multi-line discounts, and declining roaming revenues, threaten to suppress service revenue growth and net earnings.
  
• High leverage following recent acquisitions (Shaw and MLSE), even after progress on delevering, raises long-term refinancing and interest rate risks that could constrain financial flexibility and weigh on net margins if organic growth and cost synergies do not fully materialize.
  
• Secular trends of cord-cutting and persistent video subscriber losses in the Cable segment, as well as shifting media consumption patterns to OTT platforms, continue to erode legacy revenues, challenging the sustainability of both Cable and Media profitability and overall EBITDA expansion.

Valuation

• The analysts have a consensus price target of CA$55.441 for Rogers Communications based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$71.0, and the most bearish reporting a price target of just CA$40.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$23.4 billion, earnings will come to CA$2.4 billion, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 6.9%.
• Given the current share price of CA$49.27, the analyst price target of CA$55.44 is 11.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.