The Motley Fool

Should You Buy or Avoid BCE Inc. Today?

BCE Inc. (TSX:BCE)(NYSE:BCE), the largest communications company in Canada, announced better-than-expected first-quarter earnings results on the morning of April 30, but its stock responded by falling over 1.5% in the trading session that followed. Let’s break down the quarterly results and the company’s outlook going forward to determine if we should consider using this weakness to establish long-term positions.

The better-than-expected results

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

Metric Reported Expected Year-Ago
Adjusted Earnings Per Share $0.84 $0.79 $0.81
Operating Revenues $5.24 billion $5.23 billion $5.10 billion

Source: Financial Times

BCE’s adjusted earnings per share increased 3.7% and its operating revenues increased 2.8% compared with the first quarter of fiscal 2014. The company’s earnings per share growth can be attributed to its adjusted net income increasing 12.6% to $705 million, but this growth was slightly offset by its average number of common shares outstanding increasing 8.3% to 841 million.

Its slight increase in revenue can be attributed to revenues increasing in all three of its business segments, including 9.7% growth to $1.64 billion in its Bell Wireless segment, 0.3% growth to $3.03 billion in its Bell Wireline segment, and 0.6% growth to $726 million in its Bell Media segment.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

  1. Total wireless subscribers increased 2.5% to 8,102,714
  2. Total TV subscribers increased 5.1% to 2,658,106
  3. Total high-speed Internet subscribers increased 4.3% to 3,297,745
  4. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 3.6% to $2.09 billion
  5. Adjusted EBITDA margin expanded 30 basis points to 40%
  6. Cash flow from operating activities increased 6.4% to $1.05 billion
  7. Free cash flow decreased 11.8% to $231 million
  8. Free cash flow decreased 20.6% to $0.27 per share
  9. Ended the quarter with $1.13 billion in cash and cash equivalents, an increase of 98.8% from the beginning of the quarter
  10. Total assets increased 1.7% to $47.08 billion

As a result of its strong first-quarter performance, BCE reaffirmed its full-year outlook on fiscal 2015, calling for adjusted earnings per share in the range of $3.28-3.38; an increase of 3.1-6.3% from fiscal 2014, revenue growth in the range of 1-3%; adjusted EBITDA growth in the range of 2-4%; and free cash flow growth in the range of 8-15%.

BCE also announced that it will be maintaining its quarterly dividend of $0.65 per share, and the next payment will come on July 15 to shareholders of record at the close of business on June 15.

Should you buy BCE’s stock on the dip?

I do not think the post-earnings drop in BCE’s stock was warranted and actually represents a very attractive long-term buying opportunity because it trades at inexpensive valuations and because it has shown a strong dedication to maximizing shareholder value through the payment of dividends.

First, BCE’s stock trades at just 16 times its median earnings per share outlook of $3.33 for fiscal 2015 and only 15.1 times analysts’ estimated earnings per share of $3.52 for fiscal 2016, both of which are inexpensive compared with the industry average price-to-earnings multiple of 22.8.

Second, BCE pays an annual dividend of $2.60 per share, giving its stock a very high 4.9% yield at current levels. The company has also increased its dividend 11 times in the last six years, making it one of the top dividend-growth plays in the market today.

With all of the information provided above in mind, I think BCE represents one of the best long-term investment opportunities in the market. All Foolish investors should take a closer look and strongly consider making it a core holding today.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

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

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.