BCE Inc. (TSX:BCE)(NYSE:BCE), the largest communications company in Canada, announced fourth-quarter earnings results on the morning of February 4, and its stock has responded by making a slight move higher.
Let’s take a closer look at the quarterly results, two other important announcements made by the company, and the fundamentals of its stock to determine if it could continue higher from here and if we should be long-term buyers today.
A growing subscriber base leads to solid results
Here’s a summary of BCE’s fourth-quarter earnings results compared with what analysts had projected and its results in the same period a year ago.
| Metric | Q4 2015 Actual | Q4 2015 Expected | Q4 2014 Actual |
| Adjusted Earnings Per Share | $0.72 | $0.72 | $0.72 |
| Operating Revenues | $5.60 billion | $5.63 billion | $5.53 billion |
Source: Financial Times
BCE’s adjusted earnings per share remained unchanged and its operating revenues increased 1.4% compared with the fourth quarter of fiscal 2014. Its flat earnings-per-share performance can be attributed to its adjusted net income increasing just 0.8% to $615 million and its average number of diluted common shares outstanding increasing 1.9% to 853.5 million.
Its slight increase in revenue can be attributed to growth in two of its three major segments, including 5.9% growth to $1.77 billion in its Bell Wireless segment and 3.4% growth to $816 million in its Bell Media segment. The growth in its wireless segment can be attributed to its wireless subscriber base increasing 1.6% to 8.25 million and its average revenue per user increasing 4.4% to $63.67, while the growth in its media segment can be attributed to higher advertising revenues and the popularity of its new prime-time shows.
Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:
- Revenues decreased 1.5% to $3.16 billion in its Bell Wireline segment
- High-speed Internet subscribers increased 3.5% to 3.41 million
- TV subscribers increased 3.6% to 2.74 million
- Local telephone subscribers decreased 6.2% to 6.69 million
- Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 2.5% to $2.07 billion
- Adjusted EBITDA margin improved 40 basis points to 37%
- Cash flow from operating activities, excluding acquisition and other costs paid, increased 7.1% to $1.67 billion
- Free cash flow increased 10% to $916 million
Two other important announcements
BCE also made two important announcements.
First, it announced a 5% increase to its dividend to its quarterly dividend to $0.6825 per share, and the next payment will come on April 15 to shareholders of record at the close of business on March 15.
Second, BCE provided its outlook on fiscal 2016 and is calling for the following: adjusted earnings per share in the range of $3.45-3.55 compared to the $3.36 earned in fiscal 2015; 1-3% revenue growth; 2-4% adjusted EBITDA growth; and 4-5% free cash flow growth compared with fiscal 2015.
Should you buy BCE today?
It was solid quarter overall for BCE, and its dividend hike was a major positive, so I think its stock has responded correctly by moving higher. I also think the stock will continue higher from here and represents a very attractive long-term investment opportunity today for two reasons in particular.
First, BCE’s stock still trades at just 17 times fiscal 2015’s adjusted earnings per share of $3.36 and only 16.3 times its median earnings-per-share outlook of $3.50 for fiscal 2016, both of which are inexpensive given the strength and stability of its business model and its estimated 4.8% long-term earnings growth rate.
I think BCE’s stock could consistently command a fair multiple of at least 18, which would place its shares around $63 by the conclusion of fiscal 2016, representing upside of more than 9% from today’s levels.
Second, BCE now pays an annual dividend of $2.73 per share, which gives its stock a high and very safe 4.8% yield, and this will amplify investors’ potential returns going forward. Investors must also note that the company has raised its annual dividend payment for seven consecutive years, and the 5% hike it just announced puts 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 making BCE a core holding.
