The Motley Fool

Does BCE Inc. Represent the Best Long-Term Investment Opportunity in the Market Today?

BCE Inc. (TSX:BCE)(NYSE:BCE), the largest communications company in Canada, has watched its stock underperform the overall market in 2015, rising just 1.4% compared to the TSX Composite Index’s return of 3.8%, but it has the potential to outperform the market over the next several years. Let’s take a look at three of the top reasons why this could happen and why you should consider initiating a long-term position today.

1. Strong earnings growth to support a higher stock price

On the morning of February 5, BCE announced better-than-expected earnings results for its fiscal year ending in December 2014, but its stock has responded by falling over 8% in the weeks since. Here’s a breakdown of eight of the most notable statistics from the report compared to a year ago:

  1. Net earnings attributable to common shareholders increased 19.6% to $2.36 billion
  2. Adjusted earnings per share increased 6.4% to $3.18
  3. Operating revenues increased 3.1% to $21.04 billion
  4. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 2.6% to $8.3 billion
  5. Free cash flow increased 6.7% to $2.74 billion
  6. Total wireless subscribers increased 2.4% to 8,118,628
  7. Total TV subscribers increased 6.2% to 2,642,608
  8. Total high-speed Internet subscribers increased 5.1% to 3,297,026

2. Inexpensive current and forward valuations

At today’s levels, BCE’s stock trades at just 17 times fiscal 2014’s adjusted earnings per share of $3.18, only 16.2 times its median earnings per share outlook of $3.33 for fiscal 2015, and only 15.3 times analysts’ estimated earnings per share of $3.52 for fiscal 2016, all of which are inexpensive compared to the industry average multiple of 23.9.

I think BCE’s stock could consistently command a fair multiple of at least 20, which would place its shares upwards of $66 by the conclusion of fiscal 2015 and upwards of $70 by the conclusion of fiscal 2016, representing upside of more than 22% and 29%, respectively, from current levels.

3. Maximizing shareholder returns through dividends 

BCE pays a quarterly dividend of $0.65 per share, or $2.60 per share annually, giving its stock a bountiful 4.8% yield. Also, the company has increased its annual dividend 11 times in the last six years, which shows that its management team is strongly dedicated to maximizing the amount of capital it returns to shareholders.

Is now the time to buy shares of BCE Inc.?

BCE Inc. represents one of the best long-term investment opportunities in the market today because it has the support of strong earnings growth, its stock trades at inexpensive valuations, and it pays a 4.8% dividend. Foolish investors should take a closer look and strongly consider establishing positions today.

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

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