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Shaw Communications’ Outlook Rating Upgraded by Moody’s


Canadian telecom operator Shaw Communications Inc. SJR recently received a shot in the arm as credit rating agency Moody's Investors Service raised the company’s rating outlook to positive from stable. The rating agency reaffirmed the company’s Baa3 senior unsecured ratings. Moody’s stated that the primary reason for the upgrade is the recent business restructurings of Shaw Communications.

Yesterday, Shaw Communications sold its data center operations – ViaWest – to privately held Peak 10 for a consideration of C$2.3 billion (around $1.675 billion). Per the deal, the telecom operator’s customers in western Canada will continue to benefit from access to Viawest services. The company had acquired ViaWest in 2014. The company expects net proceeds of C$900 million after paying for ViaWest’s debt and Shaw credit facility borrowings associated with the original takeover.

Shaw Communications has decided to spend net proceeds for ViaWest sale to acquire highly valuable wireless spectrums. It has agreed to acquire 700 MHz and 2,500 MHz wireless spectrum licences for C$430 million from Quebecor. This includes 10 MHz of 700 MHz spectrum in British Columbia, Alberta and Southern Ontario, as well as 20 MHz of 2,500 MHz spectrum in Vancouver, Edmonton, Calgary, and Toronto.

Last year, Shaw Communications ventured into the Canadian wireless market with the acquisition of a 100% interest in Mid-Bowline Group Corp., the parent company of WIND Mobile Corp. The acquisition of WIND Mobile provides the company necessary economies of scale, crucial spectrums, a strong retail distribution chain and an installed base of wireless networks.

With WIND Mobile in its kitty, we believe that Shaw Communications is in a position to offer quad-play wireline telephony, high-speed Internet, video and wireless services similar to that offered by the other large telecom operators in Canada such as Rogers Communications Inc. RCI, BCE Inc. BCE and TELUS Corp. TU.

Price Performance of Shaw Communications

Year to date, the stock price of Shaw Communications has gained 10.87%, underperforming the Zacks-categorized ‘Cable TV' industry’s gain of 17.72% in the same time period. Meanwhile, the divestiture of its subsidiary Shaw Media to Corus Entertainment Inc. place it as a pure-play Canadian telecom company with a solid growth profile. Further, its venture into the Canadian wireless market is likely to prove beneficial. The launch of the mobile TV platform – FreeRange TV – and its SmartWiFi and SmartSecurity Services should gain traction as well. We believe that these are the reasons behind the stock currently carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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