Zacks_Analysts' Blog : Neutral on Shaw Communications - Analyst Blog

We reiterate our Neutral recommendation on Shaw Communications Inc. (SJR) ahead of its fourth quarter of fiscal 2011 financial results. Recently, the company suffered a severe blow when management decided to abandon its wireless venture. We believe the decision of Shaw Communication to abandon its wireless venture will significantly reduce the company’s competitive strength in a highly lucrative Canadian telecom market.

Shaw Communications offers tripe-play cable TV and satellite TV, Internet, and wireline phone services, whereas its main competitor Telus Corp. (TU) offers Cable TV, Internet, wireline, and wireless services. Telus shares a national wireless network with Bell Canada, a division of BCE Inc. (BCE). Its popular Optik TV, which offers IPTV services, is quickly eroding Shaw’s market share. In addition, Shaw Communications will now lack a major competitive weapon, which is the wireless service. 

We believe excluding wireless, Shaw Communications needs to execute its video offerings crucially, failing which the company may face server existing threat. In the past two quarters, the company lost 27,239 cable TV customers, indicating that all is not well in this front. Nevertheless, it is also our view that all these negatives are already reflected in the current valuation.

Shaw Communications acquired 100% stake of the over-the-air and specialty television businesses of Canwest Global Communications Corp. (“Canwest”) for approximately $2 billion. Canwest has restructured itself as a pure-play Canadian broadcaster. The current acquisition includes GlobalTV network, which boasts approximately 100% reach in Canada. 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 for the company.