Rogers stock under pressure as BofA flags slowing margins and sports investment risks

On Wednesday, BofA Securities revised its stance on Rogers Communications (TSX:RCIa) (RCI/B:CN) (NYSE: RCI), downgrading the company's stock rating from Buy to Neutral. The firm also reduced the price target to Cdn$55.00 from the previous Cdn$65.00. The stock, currently trading at $28.55, has declined 37% over the past year and sits near its 52-week low of $27.63, according to InvestingPro data.

The downgrade reflects several concerns, including the potential impact of government policies on immigration that could affect Rogers (NYSE:ROG)' customer base, uncertainties tied to the company's investments in sports assets, and higher-than-anticipated leverage. With a debt-to-equity ratio of 4.08 and total debt of nearly $34 billion, leverage remains a key concern for the $15.6 billion market cap company.

BofA Securities noted that while Rogers had previously benefited from synergies due to its merger with Shaw, these benefits have largely been incorporated into the company's margin results. As a result, there is less potential for margin growth moving forward. InvestingPro data shows the company maintains a gross profit margin of 46% and has achieved revenue growth of 12.8% over the last twelve months.

Get deeper insights with InvestingPro's comprehensive research report, which includes detailed analysis of Rogers' financial performance and growth prospects. The analysts also pointed out that the competitive landscape remains challenging, with persistent pressure from four major wireless competitors.

The firm emphasized that Rogers' leading position among new Canadians, once a growth driver, may now pose a challenge due to the expected downward adjustment in immigration levels. This demographic shift could lead to reduced customer growth for Rogers. Moreover, as margin expansion slows and the competitive environment remains intense, the company is likely to face increased pressure to decrease its debt.

The new price target set by BofA Securities is based on a 10x forward free cash flow multiple, which is lower than the historical average. This valuation reflects the market's current uncertainties, Rogers' elevated leverage, and the risks associated with its rising investments in sports.

According to InvestingPro's Fair Value analysis, Rogers Communications is currently undervalued, with analyst targets ranging from $39.15 to $52.69, suggesting potential upside despite near-term challenges. The company maintains a "GOOD" overall financial health score of 2.5 out of 5. The analysts have adjusted the price objective to C$55 (equivalent to approximately US$39), down from the previous target of C$65 (or US$50).

In other recent news, Rogers Communications has seen several key developments. BofA Securities recently downgraded the company's stock rating from Buy to Neutral, citing concerns over potential government policy changes related to immigration and uncertainty surrounding the company's increasing investments in sports assets. These factors, along with a competitive market environment, are expected to challenge Rogers Communications' margin growth.

On the earnings front, Rogers Communications reported robust third-quarter results for 2024, with a record addition of 227,000 mobile phone and internet subscribers. The company's wireless service revenue increased by 2%, while the Sports & Media division saw an 11% revenue increase. A $7 billion structured equity financing deal aimed at debt reduction was also announced, expected to close in Q4 2024.

Furthermore, the company has updated its service revenue guidance for the fourth quarter of 2024. Although specific details of the updated guidance were not disclosed, the company is expected to provide more insights during the upcoming quarterly results teleconference. These are the recent developments for Rogers Communications.

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