Western Canada's diversified telecom Shaw Communications (NYSE:SJR) posted a large revenue increase for its fiscal first quarter but net income fell due to acquisition related costs. The company also announced a 5% dividend increase.

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Acquisition Costs Dampen Earnings
Shaw Communications Inc., headquartered in Calgary, Alberta, Canada, has operations including broadcast, broadband cable, high-speed internet, and satellite TV, as well as telephone. It has 3.4 million customers, with 1.8 million internet customers and one million digital phone customers. Shaw has a market cap of $8.7 billion. The company reported C$1.08 billion in revenue this quarter, a 19% increase from C$905 million in last year's first quarter. Revenue was up 7% in its cable division, 3% in satellite, and 8% in media.

Net income was C$20 million or Cfour cents per share, compared to C$114 million or C26 cents per share. This was due in large part to a C$139 million charge for the discounted value of a C$180 million pension benefit obligation from the company's acquisition of Shaw Media, along with other restructuring charges. On a comparable basis, excluding non-operating charges from both this year's first quarter and last year's, net income would have been C$159 million in this year's quarter compared to C$180 million in last year's.

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A Growing Telecom
Shaw acquired Canwest Global Communications, known as Canwest Media, at a cost of around C$2 billion in 2010 and completed the transaction this year. Shaw expects enhanced revenue growth this year, with projected free cash flow of C$550 million for 2011. It generated C$145 million in free cash flow in the first quarter.

Prior to the dividend hike, Shaw yielded 4.2% , comparable to competitors Rogers Communication (NYSE:RCI), which yields 3.8 percent and Telus (NYSE:TU), which yields 4.8%. Earnings are expected to reach C$1.47 per share in 2011 and C$1.56 in 2012. While this earnings growth may seem modest, it's comparable or better than projections for telecom giants Verizon (NYSE:VZ) and AT&T (NYSE:T). The stock, which hasn't done much in the last year, trades at an attractive forward multiple of just over 14, compared to more than 17 for the industry.

Wireless
Shaw has been late to wireless, but is gearing up its rollout. The company expects to invest C$150 million to C$200 million in its new wireless services in 2011, which should hit the market early 2012.While Shaw had a setback as wireless executive Laurence Cooke, formerly BCE (NYSE:BCE) Bell Mobility's chief operating officer, left the company recently, Shaw's opportunity in wireless is nevertheless substantial.


Though Shaw has lagged its competitors BCE, Rogers and Telus, which are already in place in the wireless business, Shaw is expected to bring both scale and its package of bundled offerings to the wireless space. This should help Shaw make up ground from its late start in wireless and become highly competitive.

The Bottom Line
Shaw and other Canadian telecoms present an interesting group of stocks for investors to consider. While many U.S. investors might focus on Verizon or AT&T, Shaw and some of the other Canadian telecoms are attractive, somewhat overlooked stocks. Shaw historically has strong revenue, earnings and cash generation performance. Even with the earnings bump this quarter due to charges, it should still have a good year. Shaw is set to grow. Its potential growth in wireless and smartphones makes this company even more attractive long term. (For related reading about telecom, see Dial Up Choice Telecom Stocks.)

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