Why BCE (TSX:BCE) Stock Jumped 20% in 2021

BCE looks well placed to play the 5G rally this year.

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What happened?

Slow-growing telecom stocks also joined the rally late last year and notably recovered from the pandemic lows. The biggest of them all, BCE (TSX:BCE)(NYSE:BCE) was among the top gainers and soared 20% in 2021. Importantly, strong earnings-growth prospects amid full re-openings have set a strong ground for them in 2022.

So what?

Telecom stocks will likely remain in focus this year with ongoing recovery and, more importantly, 5G rollout. In addition, the companies have been investing heavily since last year, which would start to pay off with subscriber growth in the next few quarters.

BCE saw a bounce back in its net income growth, as restrictions waned in the last few quarters. It reported $3.1 billion in earnings in the last 12 months against $2.63 billion in 2020.

BCE invested $3.4 billion in capital projects in the first nine months of 2021. This has been a notable increase compared to 2020. The company expanded its capex plan for 2021, mainly to expand the network and 5G infrastructure.

BCE’s stronger balance sheet makes it well placed in the upcoming 5G battle among peers. It already leads in terms of subscribers, and aggressive 5G expansion could lead to further subscriber base growth.  

At $60 billion, BCE is Canada’s biggest telecom and media company by market cap. It generates 51% of revenues from the wireline business, while 38% comes from wireless and the rest comes from media operations. Both wireline and wireless are high-margin businesses for BCE and generate around 44% EBITDA margin. The media business earns an EBITDA margin of approximately 26%.  

Telecom stocks are perceived as safe havens by investors. That’s because they are relatively less volatile than the broader markets. Also, their stable dividends stand tall during uncertain times.

BCE leads the pack with its top-most yield in the sector of 5.3% at the moment. Peer Telus and Rogers Communications yield around 4.4% and 3.4%, respectively. Peer stocks Telus and Rogers soared 18% and 0.4% last year, respectively.

Now what?

Along with EVs and blockchain technology, 5G will also be some of the top themes for the next few years. The telecom industry will see the paradigm shift, and BCE looks well placed to play the change.

With its superior balance sheet, BCE is more capable of infusing growth capital when needed the most. Its heavy investments in 2021 and a large subscriber base should drive the earnings growth in the future.

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.

The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV and TELUS CORPORATION. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

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