Shaw (SJR) Up 14.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Shaw Communications (SJR). Shares have added about 14.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Shaw due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Shaw Communications Q3 Earnings Beat, Revenues Down Y/Y

Shaw Communications reported third-quarter fiscal 2020 adjusted earnings from continuing operations of 25 cents per share, beating the Zacks Consensus Estimate by 13.6%.

Total revenues of $911 million beat the consensus mark by 3.1%.

In domestic currency, the company reported adjusted earnings of C$0.35 per share, down 18.6% year over year. Moreover, total revenues decreased 0.8% to C$1.31 billion.

Segmental Update

Wireline revenues (81% of total revenues) dipped 1.1% on a year-over-year basis to C$1.06 billion.

Wireline - Consumer revenues slid 1.3% to C$923 million, primarily due to decline in Internet, video, satellite and phone revenues.

Wireline - Business revenues of C$140.5 million, unchanged year over year.

Wireless revenues (19.2% of total revenues) rose 1.2% on a year-over-year basis to C$252 million.

Wireless - Service revenues (81.7% of total segment revenues) were up 17% from the year-ago quarter to C$206 million, primarily driven by increased subscriber base and growing penetration of Big Gig data plans.

Average billing per subscriber unit (ABPU) grew 5.7% year over year to C$44.27, driven by increased number of customers subscribing to higher service plans. ARPU rose 2.6% from the year-ago quarter to C$38.94.

Wireless - Equipment revenues (18.3% of total revenues) plunged 37% year over year to C$46 million due to lower subscriber sales and activity in the reported quarter as a result of temporary retail store closures.

Subscriber/RGU Details

Wireline RGUs declined 55,293 in the reported quarter compared with a loss of roughly 35,171 a year ago.

In the Wireline - Consumer segment, the video cable lost 21,604 subscribers in the three months ended May 31, 2020. Video satellite customer count decreased by 110. Phone lost 20,648 customers. Moreover, Shaw Communications’ Internet business lost 5,103 customers in the quarter.

In the Wireline - Business Network Service segment, the video cable lost 4,854 customers in the reported quarter. Moreover, the company lost 4,835 video-satellite customers. However, Shaw Communications gained 1,779 phone customers and 82 Internet customers.

In the Wireless Segment, Shaw Communications lost 5,465 net RGUs. While the company added 2,236 post-paid subscribers, it lost 7,701 pre-paid customers.

Post-paid churn of 0.96% in the reported quarter was lower than 1.18% in the year-ago quarter.

Notably, the company now serves approximately 18 million people, almost half of the Canadian population.

Operating Details

In third-quarter fiscal 2020, operating, general & administrative expenses slipped 11.5% year over year to $703 million. Operating, general & administrative expenses, as a percentage of revenues, decreased 650 basis points (bps) to 53.6%.

Adjusted EBITDA grew 15.3% year over year to C$609 million. Adjusted EBITDA margin expanded 650 bps on a year-over-year basis to 46.4%.

Excluding a $38-million impact related to the adoption of IFRS 16 (Leases), adjusted EBITDA grew 8.1% year over year.

Segment-wise, Wireline’s adjusted EBITDA increased 6.9% to C$508 million. Wireline segment adjusted EBITDA margin expanded 360 bps on a year-over-year basis to 47.8%.

Wireless adjusted EBITDA jumped 90.6% to C$101 million. Wireless segment adjusted EBITDA margin was 49% compared with 30.1% in the year-ago quarter.

Balance Sheet & Cash Flow Details

As of May 31, 2020 Shaw Communications had cash worth $651 million.

As of May 31, 2020, the company’s net debt position was C$4.92 billion compared with C$5.76 billion as of Feb 29, 2020.

Moreover, as of May 31, 2020, the company’s net debt leverage ratio was 2.4X, within management’s optimal range of 2.5X-3X.

On Apr 22, 2020, Shaw Communications issued $500 million principal amount of 2.90% senior notes due on Dec 9, 2030.

In the quarter under review, capital expenditures of C$268 million were down C$12 million year over year.

Wireline capital spending increased C$195 million flat year over year. Wireless spending decreased C$14 million year over year.

Free cash flow was C$221 million compared with C$174 million in the year-ago quarter.

In April, Shaw Communications announced the suspension of share buybacks under its normal course issuer bid (“NCIB”) program.

Guidance

For fiscal 2020, Shaw Communications still expects to deliver adjusted EBITDA growth on a year-over-year basis. Free cash flow is still expected to be $700 million.

The company expects the deployment of 700 MHz spectrum to be substantially complete in Ontario by the end of fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 25% due to these changes.

VGM Scores

At this time, Shaw has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Shaw has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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