BCE (TSX: BCE) has been one of Canada’s worst-performing large-cap stocks over the last five years. Down 22% in a period when the TSX index has made considerable positive gains, it has been a real laggard.
Seeing the negative momentum in BCE stock, you might feel tempted to ignore it altogether. However, as a large-cap stock with above-average weighting in the S&P/TSX Capped Composite Index, it is likely already in your portfolio via index funds and other pooled investment vehicles. So, BCE stock is very much worth studying and understanding. In this article, I will share my outlook for BCE stock in 2025, focusing on the question of whether the stock can escape its recent slump.
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Recent earnings
BCE’s most recent earnings release was mixed, missing analyst estimates on revenue and adjusted earnings but beating on reported earnings. Some highlight metrics included the following:
- $5.9 billion in revenues, down 1.8%
- A $1.1 billion GAAP (generally accepted accounting principles) net loss
- $688 million in adjusted earnings, down 7%
- $1.84 billion in cash from operations, down 6%
- $832 million in free cash flow, up 10%
There were some definite positives here, such as the increase in free cash flow. However, most of the headline numbers in BCE’s third-quarter release showed either losses or year-over-year declines. That isn’t a positive. Also, the company failed to hit two out of the three metrics that analysts had estimated prior to the release (namely, adjusted earnings and revenue).
Heavy debt
When you look at BCE’s most recent earnings release and other financial statements, you’re likely to notice that the company has very high interest expenses. That’s because it is heavily indebted due simply to the nature of its industry. Telecommunications is a heavily leveraged industry because it requires lots of hard assets. In the most recent quarter, BCE’s capital expenditures came in at close to a billion dollars, indicating that BCE is still adding assets to its balance sheet. Most likely, those assets come with a significant debt burden. So, BCE’s debt load is unlikely to decline any time soon and will weigh on future performance.
Interest rates unlikely to come down much further
The one positive in BCE Inc’s most recent earnings release was the increase in free cash flow, which was about 10%. That was definitely good news. However, much of it was likely explained by the Bank of Canada’s recent series of interest rate cuts. When interest rates come down, variable-rate debt gets cheaper. That factor appears to have influenced BCE’s most recent earnings free cash flow. However, it isn’t likely that interest rates will come down much further. The Bank signalled in a recent statement that it is likely to stabilize its policy rate close to the current level.
Foolish takeaway
Overall, BCE stock doesn’t appear to have much going for it today. Many investors find the sky-high dividend yield (12%) enticing, but is it really worth collecting such a dividend only to see your shares become less valuable over time? It seems that this is what’s likely to happen to BCE shareholders going forward.
