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BCE Inc.’s Q2 EPS Tops Estimates: Should You Be a Buyer?

BCE Inc. (TSX:BCE)(NYSE:BCE), the largest communications company in Canada, announced its first-quarter earnings results on April 28, and its stock has reacted by rising about 1%. Let’s take a closer look at the results and the fundamentals of its stock to determine if we should be long-term buyers today, or if we should hold off on an investment for the time being.

A quarter of top- and bottom-line growth

Here’s a summary of BCE’s first-quarter earnings results compared with what analysts had expected and its results in the same period a year ago.

Metric Q1 2016 Actual Q1 2016 Expected Q1 2015 Actual
Adjusted Earnings Per Share $0.85 $0.84 $0.84
Operating Revenues $5.27 billion $5.32 billion $5.24 billion

Source: Financial Times

BCE’s adjusted earnings per share increased 1.2% and its revenue increased 0.6% compared with the first quarter of fiscal 2015. Its slight earnings-per-share growth can be attributed to its adjusted net earnings increasing 4.1% to $734 million, but this partially offset by its weighted-average number of common shares outstanding increasing 3% to 868.1 million.

Its slight increase in revenue can be attributed to its revenues increasing 3.4% to $1.69 billion in its Bell Wireless segment and 2.1% to $741 million in its Bell Media segment. The growth in its Wireless segment can be attributed to its service revenues increasing 5.3% to $1.58 billion, driven by its total number of subscribers increasing 1.6% to 8.24 million and its average revenue per user increasing 3.6% to $63.02.

The growth in its Media segment can be attributed to increased subscriber revenues, driven by the expansion of The Movie Network into a national pay TV service on March 1 and rate increases on some of its specialty channels.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Revenues decreased 1.5% to $2.98 billion in its Bell Wireline segment
  2. High-speed Internet subscribers increased 3.4% to 3.41 million
  3. TV subscribers increased 3.4% to 2.75 million
  4. Local telephone subscribers decreased 6.4% to 6.57 million
  5. Adjusted earnings before interest, taxes, depreciation, and amortization increased 3.3% to $2.16 billion
  6. Cash flows from operating activities increased 23.4% to $1.29 billion
  7. Free cash flow increased 81% to $418 million
  8. Free cash flow per share increased 77.8% to $0.48

What should you do with BCE today?

It was a great quarter overall for BCE, so I think the market has reacted correctly by sending its shares higher. I also think the stock represents a great long-term investment opportunity today for two primary reasons.

First, it’s inexpensive. BCE’s stock trades at just 16.8 times fiscal 2016’s estimated earnings per share of $3.50 and only 16 times fiscal 2017’s estimated earnings per share of $3.67, both of which are inexpensive compared with the industry average price-to-earnings multiple of 21.9, and the latter of which is inexpensive compared with its five-year average multiple of 16.5. These multiples are also inexpensive given the strength and stability of BCE’s balance sheet and its estimated 4.8% long-term earnings growth rate.

Second, it has a great dividend. BCE pays a quarterly dividend of $0.6825 per share, or $2.73 per share annually, which gives its stock a high and safe yield of about 4.6%. Investors must also note that the company has raised its annual dividend payment for seven consecutive years, and its 5% hike in February has it on pace for 2016 to mark the eighth consecutive year with an increase.

With all of the information provided above in mind, I think all Foolish investors should strongly consider beginning to scale in to long-term positions in BCE today.

Urgent update: Motley Fool issues rare "double down" stock alert

Not to alarm you but you recently missed an important and rare event. Stock Advisor Canada issued a "double down"... and history suggests it pays to listen. Because 10 of the most lucrative "double downs" in one of the Motley Fool's premier services skyrocketed an average of 434%! So, simply click here to discover why Motley Fool "double downs" have some investors rocking with excitement. Five years from now, you'll wish you'd grabbed this stock. Click here to learn more.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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