Is There Any Hope for BCE Stock?

BCE (TSX:BCE) stock has faced more pressure after laying off 4,800 employees. Should investors get out while they still can?

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The future remains quite uncertain for BCE (TSX:BCE) these days. The company has been floundering after so much success in the past. BCE stock has been on the market for the last four decades, and yet some wonder whether it has much more to give.

Earnings recently showed that the company continues to struggle after achieving pandemic highs. BCE stock saw revenue rise only 0.5% in the fourth quarter and 2.1% year over year. Furthermore, net earnings shrunk from $2.9 billion in 2022 to $2.3 billion. So, it was clear that cuts were warranted, with the company letting go of 4,800 people and seeing 45 of its 103 radio stations.

The outlook doesn’t look much better, with fiscal 2024 seeing between 0% and 4% revenue growth and free cash flow guidance at a loss of 11% to 3%.

So, is there any hope for BCE stock?

Competition increasing

One of the biggest issues that BCE stock has to tackle is the ongoing competition in the sector. Canada’s telecommunications market is becoming more competitive, with added players coming into the space. This has put pressure on prices, leading to lower profit margins for BCE stock.

Infrastructure is also an issue, as BCE stock has invested heavily in building out its fibre-optic network. Yet this cost is now leading to issues, not just with the company having to pay down investments but sharing those investments with competitors. This has led to scaling back its future infrastructure investments.

The sharing comes from government regulations, where Canada implemented policies to increase competition in the telecom sector. This would likely make it even harder for BCE stock to raise prices. And with these cuts, investors are now quite concerned the damage has been done.

Is there upside?

Don’t count out BCE stock just yet! The company certainly still has a lot going for it, though it may take some time to retain the position it once had. BCE stock remains a dominant player in the Canadian telecom industry, with a large and loyal customer base. And this could help fuel more growth initiatives.

One area would be through 5G expansion, which is expected to drive demand for faster internet speeds and data usage. And this could bring in more of the market share. What’s more, BCE stock isn’t a one-trick pony. The stock has a diverse set of television and radio as well as its streaming service Crave. Expanding media offerings could also bring in more revenue streams altogether.

With that in mind, BCE stock could potentially be undervalued, with analysts believing the stock’s share drop has been overdone. A focus on profitability for now could be all it takes to see shares improve. That can be done through streamlining operations, reducing costs, and focusing on its high-margin services.

Then there’s the dividend

So, where does that leave the dividend? BCE stock currently offers a high dividend yield at 8.66% as of writing. This comes after a recent increase of 3.1% during earnings. Yet, with profitability concerns, investors would be right to be concerned about whether the company can afford to keep up with dividend increases.

In fact, it’s been argued that perhaps a cut should happen! That way, the company could use that cash flow to work towards profitability and, furthermore, invest in its high-margin profitable areas. Though, of course, a dividend cut would likely lead to shares dropping even further.

Bottom line

It’s likely going to be a difficult path for BCE stock to climb over. That being said, its large market position and diverse offerings will likely lead to positivity eventually. But as for now, I would stick to the sidelines until more announcements are made.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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