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Shaw Communications Cut to Hold, Customer Churn High

Zacks

On Sep 20, 2016, Zacks Investment Research downgraded Canadian cable TV behemoth Shaw Communications, Inc. SJR to a Zacks Rank #3 (Hold) from a Zacks Rank #1 (Strong Buy). The company has been persistently losing video cable and video satellite customers owing to rising competition.

Consumer Loss

Shaw Communications has been persistently reporting decline in its varied consumer segments since the second quarter of 2016. Apart from the loss of video cable and video satellite customers, the company lost 27,482 Video Cable subscribers and 8,760 Internet customers in the third quarter of fiscal 2016. Moreover, landline phone subscriber count fell by 14,861 in the reported quarter. However, the company saw an increase in video-satellite subscribers of 3,847.

Cash and Liquidity


Considerable debt, escalating capital expenditure and a deteriorating cash position may act as near-term risks. At the end of third-quarter 2016, Shaw Communications had cash of $248 million, compared with $304.6 million at the end of fiscal 2015. Free cash flow was around $142.3 million, down 28.9% year over year. Meanwhile, total outstanding debt was $5,243.7 million and the debt-to-equity ratio stood at 1.1, compared with 1.24 at the end of fiscal 2015.

Other Risks

The Canadian wireless market is predominantly controlled by three big players. Apart from Rogers Communications Inc. RCI, TELUS Corp. TU and BCE Inc. BCE are other two incumbents. Together, these firms control around 90% of the total market. Despite the fact that WIND Mobile is the fourth largest wireless operator, its current scale of operation considerably lags that of the wireless giants.

Rolling out of new brands and advertising promotions are likely to raise expenses going ahead. The company also expects additional network fees in the forthcoming quarters. These combined costs will impact margins moving ahead.

Positives

Shaw Communications’ recent divestiture of subsidiary Shaw Media Inc. to Corus Entertainment Inc., places it as a pure-play Canadian telecom company with a solid growth profile. Further, venturing into the Canadian wireless market will prove beneficial for the company. Shaw Communications’ recent launch of mobile TV platform – FreeRange TV – and its SmartWiFi and SmartSecurity Services bode well. The company is also launching high-speed Internet services like WideOpen Internet 150 and is also entering into tie-ups to boost its cloud suit.

Recent Developments

In Aug 2016, Shaw Communications and TransLink announced an alliance which will provide free WiFi connections to passengers travelling between Downtown Vancouver and the North Shore on the SeaBus.

SHAW COMMS-CL B Price and Consensus

SHAW COMMS-CL B Price and Consensus | SHAW COMMS-CL B Quote

Stocks to Consider

A couple of better-ranked telecommunication stocks include NTT DOCOMO, Inc. DCM and Nippon Telegraph and Telephone Corporation NTT, both holding a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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