Zacks Analyst Blog Highlights: Shaw Communications, Rogers Communications, Target, Wal-Mart Stores and Costco Wholesale

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Jan 17, 2011, 09:30 ET

CHICAGO, Jan. 17, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Shaw Communications Inc. (NYSE: SJR), Rogers Communications Inc. (NYSE: RCI), Target Corp. (NYSE: TGT), Wal-Mart Stores Inc. (NYSE: WMT) and Costco Wholesale Corporation (Nasdaq: COST).

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Here are highlights from Friday's Analyst Blog:

Shaw Communications Beats in Q1

Shaw Communications Inc. (NYSE: SJR) has declared the financial results of its first quarter of fiscal 2011 (ended November 30, 2010), which beat the Zacks Consensus Estimate. The company provided a strong financial outlook and also raised the dividend on its common stock.

Quarterly net income was $20.3 million or 4 cents per share compared to a net income of $111.7 million or 25 cents in the prior-year quarter. However, in the reported quarter, Shaw Communications incurred around $140.5 million of special charges. Excluding this, the adjusted first quarter EPS of 36 cents was above the Zacks Consensus Estimate of 34 cents.

Quarterly total revenue of approximately $1.09 billion was up 19.1% year-over-year. The year-over-year improvement was primarily due to customer growth and rate increases in the Cable and Satellite segments. First quarter total revenue of $1.09 billion was also above the Zacks Consensus Estimate of $1.04 billion.

Quarterly operating income before amortization was $478 million, almost the same year-over-year. However, excluding one-time CRTC Part II fee recovery, operating income before amortization increased 18.4% year-over-year.

In the reported quarter, Shaw Communications generated $62.5 million of cash from operations compared to $327.9 million in the year-ago quarter. Free cash flow (cash flow from operations excluding stock based compensation expenses less capital expenditures) in the same quarter was $146.5 million compared to $162.1 million in the year-ago quarter.

At the end of the first quarter of fiscal 2011, Shaw Communications had $42.5 million of cash & cash equivalents on its balance sheet compared to $212.4 million at the end of fiscal 2010. At the end of the same quarter, Shaw Communications had $5,449 million of outstanding debt on its balance sheet compared to $3,902.6 million at the end of fiscal 2010. Debt-to-capitalization ratio, at the end of the first quarter of fiscal 2011 was 0.65 compared to 0.59 at the end of fiscal 2010.

Subscribers Statistics

At the end of the first quarter of fiscal 2011, Basic Cable customer base was 2,326,766, net year-over-year reduction of 7,542. Digital customer base was 1,713,135, net year-over-year addition of 62,216.

Internet customer base was 1,837,618, net year-over-year addition of 18,752. Digital phone lines were 1,146,148, net year-over-year addition of 49,842. DTH customer base was 904,257, net year-over-year reduction of 1,539.

Cable Segment

Quarterly revenue was $765.4 million, up 6.8% year-over-year. Subscriber growth through new acquisitions and rate increases are the primary reasons for revenue growth.

Quarterly operating income before amortization was $351.3 million, down 8.5% year-over-year.

Satellite Segment

Quarterly total revenue of $208.2 million was up 2.7% year-over-year. Within this segment, DTH revenue was $187.2 million, up 3.1% year-over-year and Satellite Service revenue was $21 million, down 0.7% year-over-year. Quarterly operating income before amortization for the whole segment was $70.2 million, down 26.6% year-over-year.

Media Segment

This is a new division formed after Shaw Communications acquired all of the broadcasting assets of Canwest Global. Quarterly total revenue was $126.7 million.

Increase in Dividend

The Board of Directors has decided to increase the equivalent dividend rate by 5%. The new dividend rate for the company's Class B non-voting participating shares will be 93 cents and for the Class A participating shares will be 92 cents. The rise in dividend rate will commence on March 30, 2011.

Future Financial Outlook

Management predicted that for fiscal 2011, free cash flow for the company's core cable and satellite segment will be $550 million. The newly formed Media segment will generate $75 million of free cash flow. However after adjusting the estimated 2011 CRTC benefit obligation cash funding, the consolidated free cash flow of Shaw Communications in fiscal 2011 will be approximately $600 million.

Management also declared that the company will invest around $150 million - $200 million during fiscal 2011 on its Wireless initiative. Shaw Communications is now expecting to start deploying wireless networks in early 2012, approximately 3 months later than its previous forecast.

Our Recommendation

Shaw Communications mainly competes with Rogers Communications Inc. (NYSE: RCI). We maintain our long-term Neutral recommendation for Shaw Communications. Currently it is a short-term Zacks #3 Rank (Hold) stock.

Target's First Overseas Outpost

Target Corp. (NYSE: TGT), in its first expedition outside the U.S., has announced its plan to expand into Canada by acquiring leases for 220 Zellers stores, owned by Hudson's Bay Company.

Target will be gaining the leasehold interests on the properties by paying C$1.825 billion to Zellers Inc. The transaction amount will be made in two equal payments of C$912.5 million, expected in May and September, 2011.

Zellers, one of the largest mass-merchandise retailers in Canada, has more than 270 stores and was founded by Walter P. Zeller in 1931. During the transition period, Zellers Inc. will continue to operate these stores under the Zellers banner by subleasing these sites from Target.

Minneapolis, Minnesota based company, Target, plans to open 100 to 150 stores in Canada by 2013 and 2014, expecting revenues similar to those from new stores in the US.

Moreover, these stores will offer a well-built preliminary underpinning for a more dynamic Target presence in Canada. Further, Target, through the deal, expects to establish an affordable and trendy approach to retailing, despite stiff competition from Wal-Mart Stores Inc. (NYSE: WMT) and Costco

Wholesale Corporation (Nasdaq: COST).

Additionally, Target also announced that it has hired an adviser to sell its $6.7 billion credit-card receivables portfolio, an act it chased before the credit crisis occurred. The probable sale of credit-card receivables portfolio comes amid the successful launch of its REDcard Rewards program.

The company believes that the current environment of the capital market offers a striking prospect to slot in interested parties for the sale of these assets. However, Target intends to retain operational control of its strategically imperative financial services business along with its intense integration with retail operations.

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