BCE Inc.: Could This Stock Hit $70?

BCE Inc. (TSX:BCE)(NYSE:BCE) has nearly tripled since the darkest days of the Great Recession. Is more upside on the way?

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BCE Inc. (TSX:BCE)(NYSE:BCE) has been a top performer for the past seven years, and investors who missed the impressive rally are wondering if more upside is on the way.

Let’s take a look at Canada’s telecom giant to see if it deserves to be in your portfolio.

Earnings

BCE just reported adjusted Q1 2016 earnings of $0.85 per share, up slightly from the same period last year.

Wireless revenue rose 3.4% on the back of subscriber growth and a higher postpaid subscriber mix combined with a 3.6% increase in blended average revenue per user. Customers are consuming more data as usage of the company’s leading 4G LTE networks increases.

The wireline division generated positive EBITDA growth for the seventh consecutive quarter. Revenue slipped 1.5% compared with Q1 2015 as slow economic growth and competitive pricing pressures impacted the business market.

Residential services fared better. The company’s Fibe TV roll out continues to be a success with 24.3% more customers using the service in Q1 2016 compared with the first quarter last year.

The high-speed Internet customer base increased 3.4% year over year.

BCE has ramped up its media division in recent years and now holds a wide range of assets, including professional sports teams, a television network, radio stations, and specialty TV channels.

Media revenue rose 2.1% in Q1 2016 compared with the first quarter last year. The division continues to adjust to the rapidly changing market, and getting all of the parts working together in a way that minimizes costs and maximizes revenue will take some time. Revenue from the group now accounts for 12% of the company’s overall sales.

The appeal of the media division is that it strengthens BCE’s competitive position in the overall Canadian marketplace and gives the company a foothold at all points in the media and communications value chain.

Outlook for 2016

BCE is on track to deliver $3.45-3.55 in adjusted earnings per share. Free cash flow growth is expected to be 4-12%, and the company remains within its payout-ratio target of 65-75% of free cash flow.

Could the stock hit $70?

The shares are already trading just shy of the $60 mark. Revenue growth is expected to be 1-3% this year and adjusted EBITDA growth will be 2-4%, so there isn’t a big catalyst on the revenue side to justify another 15-20% surge in the share price in the near term.

However, BCE continues to pay a big dividend, and growth in the payout should continue in line with improvements in free cash flow. With a yield of 4.6% and a business that is relatively immune to the volatility of the broader market, BCE continues to attractive safe-haven investors and yield seekers.

As long as interest rates remain low, BCE’s multiple could continue to creep up, and $70 isn’t out of the question over the next couple of years.

Should you buy?

BCE is a dominant company in an industry with few competitors, and that situation is unlikely to change. The stock isn’t cheap, but you get a rock-solid business with great yield. At the moment, comparable picks are few and far between.

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 Andrew Walker has no position in any stocks mentioned.

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