Rogers Communications beat third-quarter revenue and adjusted earnings expectations and reaffirmed its annual guidance. The results put the challenges facing Canada’s slower-growing wireless industry in focus.
BNN Bloomberg spoke with John Zechner, chairman and founder at J. Zechner Associates, about telecom valuations, satellite competition and his recent portfolio changes across Canadian stocks.
Key Takeaways
- Lower capital spending could help telecom companies generate more free cash flow to reduce debt and support shareholder payouts.
- Zechner sees Starlink’s threat to Canadian urban wireless services as overstated and added to BCE, Rogers and Telus during recent weakness.
- Rogers’ sports holdings could provide another source of value through a planned monetization.
- Wider Canadian heavy oil discounts prompted Zechner to trim producers and consider light oil and natural gas opportunities.
- A roughly 25 per cent decline in Celestica shares created a buying opportunity for Zechner, who remains positive on its exposure to AI infrastructure spending.
Read the full transcript below:
LINDSAY: But we’re also going to continue talking about Rogers Communications because, as we mentioned, it reported its third-quarter results, beating analyst expectations for both revenue and adjusted earnings per share. Let’s get more now from John Zechner, chairman and founder at J. Zechner Associates. Good morning. Great to have you join us.
JOHN: Hey, good morning, Lindsay.
LINDSAY: So Rogers beat on both revenue and earnings per share, also reaffirmed guidance for the year. What do you think drove this quarter? What were you seeing in the results?
JOHN: Well, it was pretty much as expected, to a degree. I mean, certainly we all know that the top line and the overall growth rates are relatively slow. I mean, ever since they sort of reduced immigration into Canada, you got four players and wireless, and these aren’t — these aren’t high-growth businesses anymore by a long shot. So the fact that, you know, sub adds on the new subscription, new adds, if were disappointment relative to expectations, but also the ARPU, the revenue per user dropping, just tells you that, hey, there’s — it’s a competitive business, it’s slower growth, and, you know, don’t count on a lot there.
On the other side, I mean, Rogers is doing exactly what they should be doing in — in a slower-growth business like this. They’re cutting their capital spending dramatically. I mean, it’s under 10 per cent of revenue now, which is a — a huge pullback. And they did a free cash flow of close to 1,000,000,004 in the quarter. So you’re annually — annualizing something close to five and a half billion dollars in free cash flow, which they can use to pay down the debt from the Shaw acquisitions and their buy-in of the — the chunk of MLSE that they recently did, and ultimately paying more dividends to shareholders.
So, you know, from my point of view, that’s great news. There’s no surprises, but I think Rogers doing exactly what you need to do in this environment. And then, at a point too, obviously they’ll monetize that sports as if they’re talking about it into the first quarter of next year. We know sports valuations in general have gone up dramatically from all the private transactions we’ve seen lately. And Rogers owns the packets. They own, you know, the — you know, the Leafs, the Raptors, the Jays. They own the venues that they — they’re in. They own the broadcast rights. I mean, they’ve got it across the board. They’re a lot like Madison Square Garden in that — in that regard, in terms of the corporate structure. So I think they’ll, you know, achieve a decent valuation, and it’s just more of, you know, I think that’s going to be good news for the company.
The sector’s been under a lot of pressure, Lindsay. I mean, certainly the weakness we saw a few weeks ago on the SpaceX news, I think, was so overdone. And the fact that SpaceX now saying they’re buying — not only they bought spectrum, but they’re also going to be buying cell towers — makes it clear that they want to become the sort of the fourth wireless player in the U.S.
LINDSAY: Well, I wanted to ask you about that in more detail. Like, when you started talking to SpaceX, that was one of the things I was going to ask you: in talks to lease or secure 80,000 cell sites across the U.S. What do we know at this point about those talks? What do you make of that decision?
JOHN: Well, I think specifically with the talks, I have no idea, but I would assume that they’re going ahead, and I assume that they are really intent on becoming the fourth wireless player in the U.S. to sort of increase the Starlink’s business overall.
Having said that, I mean, the capex is going to be absolutely substantial, probably north of 100 billion to make them a viable competitive rise in AT&T and T-Mobile, and that’s for a company that’s already up to their eyeballs in capital spending on, obviously, what they’re doing on — on in space launches and everything else there, and on AI.
But the bigger question for investors here is, you know, how does that impact the Canadian telecom stocks? And it, you know, initially it was a real sell-on news, and I think that’s totally misguided because I don’t think there’s any chance that Starlink is coming up here. First of all, there’s no spectrum really available. They will be, you know, out in rural environments and, you know, hard-to-reach places for the major telcos. They’ll probably come in maybe under partnerships agreement on that basis. But I just don’t see them being a competitor in the — in the urban areas.
I mean, I’ve used Starlink before on cruises and things like that. It’s a great service. It doesn’t compare with what you’re getting from the domestic players within the urban market in terms of speed, so I don’t know. I find that more as a red herring, and I think it more has created an opportunity to add to all the names in the sector, including Rogers.
LINDSAY: Well, when it comes to Canadian telecom stocks, are you a buyer of them at this — at current levels?
JOHN: Yeah, we had owned BCE and Rogers prior to the recent sell-off, and I added to both positions. We also started buying back Telus under $12. I mean, we had sold it last year, just worried about what they were going to do with the dividend, and they — so they cut the dividend.
Problem with Telus via the additional selling has been because their ancillary businesses, Telus Digital and Telus Health, have underperformed as well, so they need to clean those up a little bit. But I think they’re in the process of doing. There’s a potential upside from that. You know, BCE has made their ancillary business, or maybe mostly in fibre and in data centres, which I think makes sense as businesses they know.
So I think all of these companies, their core telecom businesses are slowing. That’s, you know, just where they got a fourth player there, and that’s, you know, not unexpected. The valuations are low, six, seven times operating cash flow, decent dividend yields, and, you know, if they — if they follow Rogers’ example and start to cut the capex a little bit, you know, even better. That means more free cash flow.
So, yeah, as value plays in the sector, this sort of fits what I’m looking for in the market right now: probably limited downside, some decent dividend yields, valuation support, and out of favour, which they completely are.
LINDSAY: I wanted to talk about some other stocks that you’ve been buying and selling right now, but we’ll get to what you’re currently a little more underweight in. You’ve reduced positions in Canadian heavy oil stocks like Cenovus, Canadian Natural, Headwater Exploration. Why is that?
JOHN: They just had a great run this year, Lindsay. And I don’t know that you ultimately get any solution in the — in the Gulf. But obviously, more oil is starting to get through. But more importantly, in Canada, this spread on WCS, Western Canadian Select heavy oil, has really opened up. It’s from under $10, you know, when this whole conflict started back in March, to almost $30 today, and that’s the price that, you know, CNQ and that Cenovus and all these heavy oil players are going to get.
And I guess the problem is a little bit is, you know, Trans Mountain is running full at this point. We have yet to get the pipelines that are going to get this product to other international markets, and that’s going to take years. And in the interim, you really are getting more heavy oil coming out from Venezuela. I think they’ve moved from probably 100,000 barrels, you know, almost insignificant in the beginning year, to around 600,000 barrels. So, you know, that’s competition for Canadian heavy crude.
So put all that together, I’d rather, you know, the stocks have had a great move, and I’m just taking some profits, reducing positions, looking for more light oil plays. You know, name like Whitecap, or maybe look at some of the natural gas players. But in the interim, you know, we turned seller on these a few weeks ago.
LINDSAY: You also just added Celestica back to your portfolio. Why is that?
JOHN: You know what, that sell-off we’ve seen in — in the tech sector in the past couple years, in past week or so, it’s just really more the way. I just think this was an overbought market and with a lot of bad technicals, and it has sold off so quickly. Celestica has dropped 25 per cent from its early October highs, and I’m looking at about 15 times forward earnings. They are still going to be the key builder of data centres, and they’ve got, you know, a great footprint there. Their biggest customers are the big hyperscalers.
So next week will be a real tell with Alphabet, Microsoft and Amazon all reporting. I don’t know if we’ll get any clarity on what their ’27 capex on AI is, but clearly Celestica will continue to benefit from this at a very low valuation.
So we had taken money out of names like Oracle and some of what I thought were the higher-risk players because they’re free cash flow negative, but to such a large degree. And in this beaten-up market, I’m looking for players that are, I think, have decent value of growth the next couple of years, and, like I say, are trading at better valuation. And Celestica ticks off all those boxes.
LINDSAY: OK, we’ll leave it there for now. John Zechner, chairman and founder at J. Zechner Associates. Really appreciate you joining us, as always. Thanks so much.
JOHN: Thanks, Lindsay.
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This BNN Bloomberg summary and transcript of the Oct. 23, 2026 interview with John Zechner are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
