Rogers Communications: Outperformance Likely To End

Image: A line chart showing Rogers Communications' debt-to-EBITDA ratio from 2020 to 2025, peaking at 5.2x in early 2025 before declining to 3.6x by Q2 2025, juxtaposed with a flatline representing the telecom sector's average debt-to-EBITDA ratio of 4.0x during the same period.

The Canadian telecom giant Rogers Communications (TSE: RCI.B) has long been a darling of investors, buoyed by its dominance in wireless and cable services and a strategic pivot into media content. However, a confluence of structural industry headwinds, unsustainable debt levels, and diminishing growth tailwinds suggests that its outperformance is nearing an inflection point. As the sector grapples with commoditization and margin compression, Rogers' financial engineering may no longer shield it from the realities of a slowing market.

Profitability Fatigue: A Sector in Transition

The telecom industry is entering a period of stagnation, with global service revenue growth projected to lag behind inflation. According to PwC's Global Telecom Outlook, global telecom service revenues are expected to expand at a compound annual growth rate (CAGR) of just 2.9% from 2024 to 2028. For Rogers, this translates to a shrinking margin of error. While its Q2 2025 results showed a 2% year-over-year increase in total service revenue and adjusted EBITDA, these gains mask underlying fragility. The wireless segment, its core business, delivered a meager 1% EBITDA growth, with postpaid churn falling only marginally to 1.00%. Meanwhile, capital expenditures for 5G infrastructure-critical for maintaining competitiveness-are straining free cash flow, which, despite a 39% surge to $925 million in Q2 2025, remains volatile.

The sector's broader challenges are compounding Rogers' struggles. As notes, telecom operators are trapped in a "cost containment paradox": they must invest heavily in next-generation infrastructure (e.g., 5G, AI-driven networks) while resisting price increases due to commoditization (Deloitte Insights on telecom outlook 2025). For Rogers, this has led to a precarious balancing act. Its debt-to-EBITDA ratio, though reduced to 3.6x by June 2025 following its First Quarter 2025 results that documented a $7 billion equity infusion from Blackstone, still exceeds the sector average of 3.0x, according to Simply Wall St. With net debt hovering near CA$35.4 billion, per Macrotrends' long-term debt, the company's ability to fund innovation without further deleveraging is questionable.

Valuation Risks: A Mispriced Optimism?

Rogers' valuation appears to reflect a disconnect between its fundamentals and market expectations. As of September 2025, the stock trades at a forward P/E of 9.91 and an EV/EBITDA of 7.57, based on Macrotrends' P/E series, significantly cheaper than peers like TELUS (P/E: 22.49) and BCE (P/E: 11.94). On the surface, this suggests undervaluation. However, a closer look reveals red flags. The company's Altman Z-Score of 1.01-a metric predicting financial distress-places it in a "gray zone," signaling elevated insolvency risk, per StockAnalysis. Additionally, its Debt/Equity ratio of 2.54 and EV/FCF ratio of 34.78 highlight a reliance on debt-driven growth that may not sustain investor confidence in a rising-interest-rate environment.

Analysts' price targets further underscore skepticism. Despite the recent deleveraging, the average target of $33.00 implies a 7.15% downside from current levels (StockAnalysis), reflecting concerns about earnings sustainability. This is not merely a Rogers-specific issue. EY's 2025 telecom risk report identifies "debt sustainability" as a top-tier threat for the sector, with telcos facing pressure to refinance maturing obligations amid tighter credit conditions. For Rogers, whose debt maturity profile remains undisclosed in recent filings, this could trigger a liquidity crunch if borrowing costs rise further.

Strategic Gaps: Can Media and AI Offset Declining Margins?

Rogers has attempted to diversify into high-growth areas, such as media and AI, to offset telecom sector stagnation. Its media segment, bolstered by a 12-year NHL broadcasting deal, saw a 10% revenue surge in Q2 2025 (its Q2 2025 results). However, this growth is geographically concentrated and subject to content lifecycle risks. Similarly, while the company has invested in AI-driven customer service and network optimization, these initiatives are still in early stages and unlikely to meaningfully impact margins before 2026, according to Forbes' telecom trends piece.

The 6G race, another potential growth lever, remains speculative. Deloitte notes that 6G development is still in its infancy, with no clear monetization path for telcos in the near term. For Rogers, whose capital expenditures are already strained by 5G deployment, diverting resources to 6G research could exacerbate cash flow pressures.

Conclusion: A Correction Looms

Rogers Communications' historical outperformance was built on a combination of market dominance, aggressive M&A, and strategic debt management. However, the era of easy growth is ending. A slowing telecom sector, coupled with structural debt overhangs and limited near-term catalysts, suggests that the stock is entering a phase of mean reversion. While its recent deleveraging efforts and media expansion offer some hope, these are insufficient to counteract the broader industry tailwinds. Investors who have long bet on Rogers' resilience may soon find themselves on the wrong side of a correction.

Visual: A comparative bar chart showing Rogers Communications' P/E, EV/EBITDA, and Debt/EBITDA ratios against BCE and TELUS as of Q3 2025, highlighting Rogers' lower P/E but higher Debt/EBITDA.