(SJR) Shaw Communications Analyst Remains Neutral

We are maintaining our Neutral recommendation on Shaw Communications Inc. (SJR), a leading provider of broadband cable television and Direct-to-home (DTH) satellite services in the U.S and Canada, based on strong third quarter 2011 results where both the top line and bottom line beat the Zacks Consensus Estimate.

Shaw Communications acquired a 100% stake in the over-the-air and specialty television businesses of Canwest Global Communications Corp. (“Canwest”) for approximately $2 billion. The inclusion of such a popular broadcasting network is expected to position Shaw Communications as one of the leading entertainment and communications companies in the Canadian broadcasting industry. Moreover, with the acquisition of Canwest, the company intends to diversify its operations, which in turn will provide better future growth prospect.

Furthermore, the inclusion of Global TV network will enable the company to offer selected television shows in HD. Currently, the company possesses 70 HD channels and with the launch of its third satellite, it seeks to will add more HD channels and 3D telecast.

One of the silver linings for Shaw Communications product portfolio is its enhanced service quality. The enhanced service quality is primarily attributable to the increase in the downloading and uploading speed of its internet product Shaw Extreme from 15 to 25 Mbps and 1 to 2.5 Mbps, respectively followed with Canadian award winning twenty-four hours service throughout the year. Recently, the company also launched one the cheapest HD set top box that also supports HD and 3D ready telecast service.

Shaw Communications has already deployed high-speed DOCSIS 3.0 network in several western Canadian markets under the brand name “Nitro Internet Service”. This technology offers 100 Mbps download speed. Nitro Internet Service is the fastest Internet service available in Canada. Moreover, Shaw Communications has purchased spectrum and intends to expand its footprint in the wireless market by deploying its wireless services by 2012

However, the company continues to lose basic video customers due to increased competition in the cable TV market. TELUS Corporation (TU), Rogers Communications Inc. (RCI) and BCE, Inc. (BCE) constitute 90% of the Canadian cable and media market share. So the company is facing intense competition to retain its market share. Moreover, launch of popular Optik TV from Telus Corp. and delay in the roll out of wireless network service will further reduce market share as more and more companies start entering the lucrative Canadian market, which we believe will increase the competition going forward. Furthermore, we believe that increased promotional expenses in the near term coupled with HD set top boxes and HD movies provided to the customers at cheap rates will put pressure on margins going forward.

We, thus, maintain our long-term Neutral recommendation for Shaw Communications Inc. Currently, Shaw Communications Inc. has a Zacks #2 Rank, implying a short-term Buy rating on the stock.

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