The Thomson Reuters building at Canary Wharf, LondonTOBY MELVILLE/Reuters
Vince Valentini, an analyst at TD Newcrest, listed in a note the many challenges facing Canada's wireless industry, most of which relate to rising competition from new players that is sapping some of the strength from the incumbents.
"We maintain our underweight recommendation for the sector, as we believe the news will get worse before it gets better," he said.
But that doesn't mean there aren't opportunities if you expand your gaze beyond the publicly traded wireless companies and toward communications stocks. There, you'll find Thomson Reuters Corp. , the financial data publishing company that is Mr. Valentini's top stock pick - despite its 4.2 per cent dip in February.
"Our investment thesis on Thomson Reuters is that we have a classic late cycle business that is showing signs of accelerating revenue growth at the same time that net synergies from its largest acquisition ever are about to reach peak levels," he said.
In 2008, Thomson Reuters was formed when Thomson Corp. acquired Reuters Group PLC in a $17-billion (U.S.) deal. At the time that the deal was closed - just before the start of the financial crisis and global recession - Thomson said that it expected to save about $500-million in annual savings from the combination of the two companies.
Mr. Valentini noted that Thomson Reuters' revenue growth is accelerating as he had expected, the cost-savings (or synergies) are bigger than he had expected, and the company has signalled its confidence going forward by raising its dividend to the point where the payout ratio is above its target range.
"We believe many analysts and investors are being short-sighted in their view of Thomson Reuters shares, and we continue to pound the table on this A-rated name," he said. "We look forward to a potential improvement in sentiment subsequent to the company's annual investor day on March 31."
He has a price target of $52 (Canadian) on the stock.
David Berman