Telecom and media stocks generally offer better yields than the market average, but their performance as a sector has been mixed.
There are 50 telecom and media stocks traded in Canada. To sharpen the selection we set a market cap requirement of $50-million, which left 32 listings, removing smaller players such as NeuLion , an online video provider. We also screened out companies that were unprofitable in their last fiscal quarter, which left us with 20 stocks.
The first such measurement is called StarMine SmartEstimate, which is a proprietary blend of analysts' estimates that aims to more accurately forecast upcoming results than the consensus estimate. It gives a weighting to each analyst's estimate according to his or her past accuracy. SmartEstimate also gives greater emphasis to the timeliest forecasts and less to those that have not been updated for a lengthy period.
Our screen lists the degree of change, up or down, in the SmartEstimate for each company's EPS this year, measured as a percentage of the original forecast. This column gives an idea of which way momentum is going for the stock. Most of the companies listed show only small changes.
The percentage difference between the SmartEstimate and the consensus estimate of the Street, called the mean, produces another StarMine metric called the Predicted Surprise. Stocks with positive surprises tend to have above-average price performance. Stocks with negative surprises tend to underperform the market, according to StarMine. Again, the amount of variance for the telecom and media sector is quite small compared with some of the other sectors we have screened in the past.
The third StarMine measurement applied to this screen is the Analyst Revisions Model, or ARM, which is a measure of the change in analyst sentiment ranging between 1 and 100, with 100 representing the highest rank.
The ARM looks at changes in the consensus over multiple time frames and not just for earnings, but also EBITDA and revenue revisions. It also takes into account the Predicted Surprise percentage shift on these various measures. When this score is near the top (100 - the highest ranking) or bottom (1 - the lowest ranking) of its range, it is highly predictive of future earnings revisions up or down and helps investors anticipate these events, StarMine says.
The screen ranks the companies by their ARM scores, and there is a wide range in the numbers, from 95 for Shaw Communications down to 12 for Yellow Media .
Calgary-based Shaw is actually something of a paradox. The company boasts the highest ARM score but has a slightly negative predicted surprised. Shaw has been losing cable customers to rival Telus Corp.'s new Internet protocol-based TV product. Sentiment has recently improved after the new CEO, Brad Shaw, released better-than-expected quarterly results in June, in part by playing up the company's Internet service. But some analysts worry about the company's ability to make price increases stick in today's competitive market.
Montreal-based Cogeco Cable lands second on the list. Unlike Shaw, Cogeco has been spared some of the competitive pressure from regional telecom incumbents. The company's core markets fall largely outside the areas where BCE Inc. plans to introduce its Internet-protocol television.
Broadly speaking, stocks on the top half of the list have momentum and are trading near their 52-week highs, while those on the lower half hover close to their one-year lows.
At the bottom of the screen is Yellow Media, whose stock delivered one of the worst performances on the S&P/TSX in the first half of 2011, second only to that of Sino Forest shares. Some analysts worry that Yellow Media's growth in new online revenue is only partially mitigating the erosion of print advertising revenue.