Who wins the wireless battle unfolding in Canada, will largely determine the winners and losers within the telecom and cable sector over the next few years, says a new report from Desjardins Securities.
"We believe that growth in cable and telecom operations is rapidly converging and companies with a significant wireless presence and capacity for cost-cutting should outperform over the short to medium term," said analyst Maher Yaghi, who initiated coverage on eight of the country's telecom and cable companies last week.
He said valuations in the sector support higher stock prices in the next twelve months, with companies that have a strong wireless presence the most likely to benefit from strong growth.
While cable companies have the technological advantage over wireline companies with regard to TV and Internet services, Mr. Yaghi said all companies in the sector who can demonstrate cost cutting abilities should be rewarded by the market.
His Buy recommendations include wireless giant Rogers Communications Inc., undervalued Telus Corp. and Quebecor Inc., which should gain share in a very competitive wireless market in Quebec.
As the for the other names in the space, Mr. Yaghi has a Hold rating on BCE Inc., Bell Aliant Regional Communications Income Fund, Cogeco Cable Inc., Manitoba Telecom Services Inc., and Shaw Communiciations Inc.
"While we believe that BCE has the capacity to further trim costs, our view is that the company's broad exposure to wireline could prove to be a disadvantage in an environment where wireless substitution could become more prevalent," he wrote.
Cogeco Cable, may have some upside left, he added, but the expected turnaround of its business in Portugal may take longer than anticipated.
Meanwhile, valuations of Shaw, Bell Aliant and Manitoba Tel are "fair and that upside could be limited over the short to medium term."