Buy Alert: This TSX Stock’s Broadband Play Makes it a Good Bet!

Here’s why you can look to add stocks such as Cogeco Inc (TSX:CGO) to your portfolio.

| More on:

There is a lot of noise in the world about a vaccine for the COVID-19 virus. Most of it is just that: noise. The few promising ones go about their business in a quiet way. Look out for quiet, unassuming stocks that go about their business and take everything that is thrown at them in stride.

Cogeco (TSX:CGO) is a player in the communications and media space. It operates under the Cogeco Connexion name in Québec and Ontario. Along the East Coast of the United States, it operates under the Atlantic Broadband brand name.

Q3 didn’t slip away

The company announced its results for the third quarter ending on May 31, 2020, recently. Revenue increased by 1.4% to $626 million compared to the same period in 2019. Adjusted EBITDA was $298.4 million, up by 2.9%. Free cash flow decreased by 15.1% at $119.2 million.

Cogeco’s media business, particularly its radio segment, was hit hard by the pandemic. A large part of its radio advertising revenue comes from the retail industry. Cogeco owns and operates 23 radio stations mainly across Quebec, and since most retail stores in the region were temporarily shut between March to May, “…they significantly reduced or completely stopped their media spending.” The radio business recorded a year-on-year decline of 33% in revenue.

President and CEO of Cogeco Philippe Jetté minced no words when he said, “As for Cogeco Media, we know that the media industry has been particularly hard hit by the effects of this pandemic, and our radio subsidiary is no exception.”

Since June, as the lockdown restrictions are lifted, the retail sector is opening up, and that should bode well for Cogeco. The company has offered a number of relief initiatives to customers including “…temporary discontinuance of late fees and data overage fees.”

However, Cogeco saw a strong increase in the demand for services from Cogeco Connexion and Atlantic Broadband. The company also had a lower level of customer activations and disconnections. This translated into lower operating costs.

What’s next for this TSX stock?

The company’s financial outlook for the fiscal year ending on August 31, 2020, is as below. It expects

  • Low-single digit percentage growth in revenue;
  • Low-single digit percentage growth in adjusted EBITDA; and
  • Mid-single digit percentage growth in free cash flow.

Cogeco expects its advertising revenue to fall some more, as lockdown measures in Montreal only began in June. The company says its advance bookings have improved modestly. However, the company has shied away from giving a forecast for FY 2021.

I wrote about Cogeco in April this year, recommending it as a buy in a recession. Even though the stock is around the same price, my viewpoint hasn’t changed. Cogeco numbers will only improve as restrictions are lifted and life limps back to normal.

Analysts have given the stock a target price of $103, which means it’s trading at a discount of over 20% right now. It’s a good stock to add to your portfolio at this time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

More on Tech Stocks

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

An investor uses a tablet
Tech Stocks

Canadian Tech Stocks to Buy Now for Future Gains

Not all tech stocks are created equal. In fact, these three are valuable options every investor should consider.

Read more »

dividend growth for passive income
Tech Stocks

2 Rapidly Growing Canadian Tech Stocks With Lots More Potential

Celestica (TSX:CLS) and Constellation Software (TSX:CSU) are Canadian tech darlings worth watching in the new year.

Read more »

BCE stock
Tech Stocks

10% Yield: Is BCE Stock a Good Buy?

The yield is bigger than it's ever been in the company's history. That might not be a good thing.

Read more »

Happy shoppers look at a cellphone.
Tech Stocks

So You Own Shopify Stock: Is it Still a Good Investment?

Shopify (TSX:SHOP) stock has had a run, but there's still room to the upside.

Read more »

A person uses and AI chat bot
Tech Stocks

AI Where No One’s Looking: Seize Growth in These Canadian Stocks Before the Market Catches Up

Beyond flashy headlines about generative AI, these two Canadian AI stocks could deliver strong returns for investors who are willing…

Read more »