RBC upgrades Rogers with more positive view on Canadian telecoms

Canadian telecom Rogers Communications (NYSE:RCI) had ticked up slightly Friday, vs. a lower Communications sector, after an upgrade at RBC Capital Markets to Outperform.

Rogers stock has dipped 9% year-to-date, vs. telecoms that have fallen 5% and a broader market that's gained 9%, analyst Drew McReynolds points out.

That makes for an "attractive and timely entry point," McReynolds said, against the backdrop of RBC's estimation of 2025 net asset value of C$79/share.

The view incorporates a number of positives, including closer proximity to realizing the bulk of C$1B-plus in Shaw acquisition cost synergies; a likely "steady de-risking" of the stock as post-Shaw visibility increases; clearer option value on noncore/non-telecom assets; and "recalibrated" expectations for wireless average revenues, a tougher cable environment, and elevated capital expenditures.

It also accounts for a less cautious view on Canadian telecoms overall.

Heading into 2023, "We believed the sector was at another major structural crossroad with the Rogers-Shaw-Quebecor transactions, 5G and higher interest rates putting competitive structure, growth and valuations to the test," McReynolds said.

The sector's "not out of the woods by any stretch re: competition, regulation, economic and/or interest rate headwinds," but RBC is more confident the big three (RCI, BCE, TU) can manage step-ups in competitive intensity; new MVNO/TPIA frameworks will offer a "good enough" balance between facilities operators and resellers; and stocks at current valuations can "begin to work again" driven by net asset value growth in a soft landing/near-peak interest rate setup.

RBC has a price target of C$72, implying 28% upside.