3 Reasons Why BCE Inc. Could Continue to Outperform the Market

BCE Inc. (TSX:BCE)(NYSE:BCE) could continue to outperform the overall market for three primary reasons. Is there a place for it in your portfolio?

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BCE Inc. (TSX:BCE)(NYSE:BCE), the largest communications company in Canada, has widely outperformed the overall market in 2015, rising more than 7.5% as the S&P/TSX Composite Index has fallen over 9%, and I think it could continue to do so in both the short and long term. Let’s take a look at three of the primary reasons why I think this will happen and why you should be a long-term buyer of the stock today.

1. Its strong earnings results could support a continued rally

On the morning of November 5, BCE released very strong earnings results for its three- and nine-month periods ending on September 30, 2015, and its stock has responded by rising about 2% in the weeks since. Here’s a summary of 10 of the most notable statistics from the first nine months of fiscal 2015 compared with the first nine months of fiscal 2014:

  1. Adjusted net earnings increased 16.5% to $2.23 billion
  2. Adjusted earnings per share increased 7.3% to $2.64
  3. Operating revenues increased 2.6% to $15.91 billion
  4. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 3.1% to $6.48 billion
  5. Adjusted EBITDA margin expanded 20 basis points to 40.7%
  6. Cash from operating activities increased 18.8% to $4.9 billion
  7. Free cash flow increased 9% to $2.08 billion
  8. Wireless subscribers increased 1.8% to 8.18 million
  9. High-speed Internet subscribers increased 4% to 3.37 million
  10. TV (satellite and IPTV) subscribers increased 3.9% to 2.7 million

2. Its stock trades at attractive forward valuations

At today’s levels, BCE’s stock trades at just 16.9 times fiscal 2015’s estimated earnings per share of $3.40 and only 16.1 times fiscal 2016’s estimated earnings per share of $3.57, both of which are inexpensive compared with its trailing 12-month price-to-earnings multiple of 18.8 and the industry average multiple of 19.1.

With the multiples above and its 5.1% long-term growth rate in mind, I think BCE’s stock could consistently command a fair multiple of at least 18, which would place its shares upwards of $64 by the conclusion of fiscal 2016, representing upside of more than 11% from current levels.

3. It has a high dividend and is a dividend-growth play

BCE pays a quarterly dividend of $0.65 per share, or $2.60 per share annually, giving its stock a 4.5% yield. It is also very important for investors to note that it has raised its dividend for seven consecutive years, and its increased amount of free cash flow, including the aforementioned 9% year-over-year growth to $2.08 billion in the first nine months of fiscal 2015, could allow this streak to continue in 2016. 

Should you initiate a position in BCE today?

I think BCE will continue to outperform the overall market going forward, so all Foolish investors should take a closer look and strongly consider beginning to scale in to long-term positions today.

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.

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