Stockchase Opinions

Ryan Bushell Cogeco Communications CCA-T DON'T BUY Jul 18, 2023

The US was a growth driver for them, but are facing more competition there. US telcos are falling as a whole. Also, in Canada there could be the launch of a wireless service without launching a network. And Rogers owns a big stake in CCA, so will Rogers delever following the Shaw deal? These are three overhands that have pressured shares. He prefers CCA's larger peers. Also, telecoms remain weakness.

$66.930

Stock price when the opinion was issued

Cable
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WEAK BUY

Not a high multiple. Increase in subscriptions. Tailwinds as they build out their network. US side has some issues, and these need to be sorted. Canadian part has done well. Owning here won't hurt you. Yield is 4.6%.

WAIT

Extremely compelling on stock price and valuation. You'll probably do OK if you buy now, but lots of overhangs. Intense competition for broadband in US, losing subscribers. Growth is anemic. Debating whether to roll out wireless. Clouds on horizon.

HOLD

Cheap share price at the moment.
Does not own shares.
Space looking attractive as interest rate come down.
Seem to be struggling with US assets.
Better names in sector (BCE etc.)

TOP PICK

Pays a 6.3% dividend that's growing 10% annually vs. other telcos at 5%. CCA generates better cash flow. The knock is that CCA deals a lot in the US where consumers hop from one carrier to another in search of cheaper phone deals. They're gaining some market share in the US to compete with AT&T and Verizon.

(Analysts’ price target is $71.30)
WAIT

Uncertain future, with RCI.B divesting its stake. Tough times with US broadband. Rogers is now in their backyard and ready to compete. Question marks, reflected in the share price. Won't see big dividend growth. Will investing in wireless give them more earnings? Wait a couple of quarters. Yield is 5.6%.

PAST TOP PICK
(A Top Pick Dec 19/23, Down 5%)

He bought it for the dividend, which grows 10% annually. All the telcos are down because they've had to borrow to upgrade to 5G, and rates have been high. Especially if rates decline, a lot of their debt will fall in the next 2 years and this oligopoly will enjoy profitablility.

BUY

Still adding new money. He uses a name like this to offset higher beta/risk names like CSU and BN in client TFSAs. Due to price competition, telcos haven't grown. Being further tested due to less immigration. Flipside is that a 6-7% yield and a 2-3% price gain would give you a 10% total return.

Problem is all the leverage taken on to build out 5G, but not getting an economic return from it. Because CCA could hop on the fibre network paid for by others, its stock price has gone up, while the others have gone down.

PAST TOP PICK
(A Top Pick Dec 19/23, Up 27%)

FCF generation has allowed them to raise dividends faster than the other telecoms.

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Curated by Allan Tong since 2019.
99+ opinions with 4.15 rating.

TOP PICK

Well, Cogeco has. It boasts an earnings yield of 30.6%, which places it in the top 10% among global peers, while its book value yield of 146.1% put it in the top 20%. True, its 5.91% dividend yield is smaller than its Canadian competitors, but is safe at a 42.5% payout ratio and growing 10% annually--twice as fast as the others--thanks to strong cash flow. Further, CCA trades at a 6.67x PE, compared to Telus' 30.2x, Rogers' 12.4x and BCE's 179x. Cash flow is one reason why CCA has outpaced its peers in the past year, with shares up nearly 15%, while the Big Three have lost ground, with Rogers and BCE both sinking 30%.