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Cogeco swings to Q3 loss on impairment charges

cogeco communicationsThe shares of Cogeco Communications Inc. (CCA.TO) fell about 9% last week, following the announcement of fiscal 2016 third-quarter loss, compared to net profit in the similar period last year. The 11 th largest hybrid fiber coaxial cable operator in North America also trimmed its outlook for the fiscal 2017. For the reasons mentioned below, we have a bearish view on the stock. The stock closed at $61.08 on Monday.

The Montreal, Quebec-based company reported an unimpressive 2.9% increase in the fiscal 2016 third-quarter revenue to $574 million, from $557.79 million in the similar period last year.

The two-way broadband cable network provider Cogeco reported a third-quarter loss of $381.89 million or $7.03 per share, compared to a net profit of $66.29 million or $1.34 per share in the year-ago corresponding period. For the quarter ended May 2016, Cogeco booked an impairment charge of $450 million. Ultimately, this turned the company’s bottom line into red.


For the fiscal 2017, the company anticipates the revenue to grow only between 1.5% and 2%. Cogeco is also affected by the strength of the Canadian dollar. During the quarter, the operating margin has decreased to 45%, from 46.4% in the prior-year’s corresponding quarter. Similarly, the cash flow from operations decreased to $181.50 million, from $197.28 million last year.

Cogeco has a debt equivalent to 50.42% of its enterprise value. It is far higher than the industry benchmark of 25%. The company’s interest coverage also decreased to 2.73x in Q3 2016, compared to 4.76x in Q3 2015. The current ratio currently stands at 0.49.

With due consideration to the financial health of the company, we can argue that the share price will remain range bound with bearish bias in the current quarter. Thus, fundamentally, a trader should take a bearish view while speculating in the counter.

The major support for the stock exists at 60, while the minor support exists at 55. The stock also faces an uphill task of breaking the resistance at 66.50. By crossing below the zero line, the MACD indicator has indicated bearishness in the scrip. Thus, it is unlikely that the share price would rise in the days ahead.

Cogeco Communications Stock Price: July 12th 2016

So, a binary option trader should purchase a one touch put option to gain from the impending decline in the stock’s price. A target price of at least $55 should be selected by the trader. A minimum three weeks time should be given for the contract to expire.

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