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Wednesday’s analyst upgrades and downgrades Add to ...

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Inside the Market’s roundup of some of today’s key analyst actions

Rogers Communications Inc. (RCI.B-T) is “still a great long-term story,” according to CIBC World Markets analyst Robert Bek.

However, he downgraded the stock to “neutral” from “outperformer,” which he said was a move “solely due to valuation.”

“With Rogers outperforming both peers and the TSX at large so far in 2017, shares continue to push up against our valuation parameters, with the 5.8-per-cent total return to our new target of $61 (up from $59 as we increase our target cable multiple to reflect strengthening global cable comps) arguing for a more conservative near-term stance on Rogers,” said Mr. Bek. “That said, this is not an outright call to sell, given our long-term bias towards the name remains positive, and given that we still see Rogers as a solid defensive stock to hold; however, trimming overweight positions and locking in some profits at current levels would seem prudent.”

Mr. Bek said Rogers’ valuation “(both relative and absolute) looks full in the near-term.”

“Given the outperformance of Rogers [year to date], shares have started to push up against our valuation parameters,” he said. “As of the close on April 4, 2017, Rogers is trading at 8.7 times our 2017 estimated EBITDA versus BCE at 8.25 times, and TELUS at 7.8 times. Our new price target at $61 implies a target multiple of 8.9 times 2017 EBITDA on Rogers, which compares to target multiples closer to 8.25x for both BCE and TELUS.”

His target is now $61, versus the consensus of $57.29.

“Although we see a Rogers premium as fair and warranted (given momentum remains in Rogers favour, and given our bias for cable assets as part of our Broadband Arms Race thesis), there simply isn't any room to stretch this premium,” he said. “In fact, over the last 10 years, Rogers has commanded the same 0.7x EBITDA premium to BCE/TELUS, that is implied by our current rankings. However, there are now stronger relative returns elsewhere in our coverage, which argues for a more conservative near-term stance on Rogers, and a Neutral rating.”

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