Shares of Canada-based telecom giant BCE (TSX:BCE) have grossly underperformed the broader markets in recent years. Valued at a market cap of $32.3 billion, the TSX stock is down 53% below all-time highs. While the ongoing drawdown has increased the company’s dividend yield to 11.2%, let’s see if the tech stock is currently undervalued.
Is BCE stock undervalued in 2025?
BCE is facing significant headwinds amid challenging market conditions. The telecom heavyweight is grappling with slowing subscriber growth, pricing challenges, and concerns about its elevated dividend-payout ratio.
In 2025, BCE expects wireless subscriber growth of approximately 3%, down from more substantial gains in previous years. This slowdown stems from reduced immigration targets set by the federal government, with the impact becoming evident in late 2024.
Pricing remains under pressure, with BCE acknowledging that telecommunications prices have “come down dramatically” over the past five years. StatsCan data shows wireless prices have declined 40-46% since 2019, significantly impacting ARPU (average revenue per user).
Perhaps most concerning to investors is BCE’s dividend sustainability, with a yield of around 11.5% and a payout ratio exceeding 100% of free cash flow. BCE admitted the ratio is “out of whack” and needs addressing, outlining a strategy to combine operational improvements, non-core asset sales, and third-party capital partnerships for U.S. expansion projects.
How did the TSX dividend stock perform in Q4 of 2024?
BCE reported mixed results in the fourth quarter (Q4) as the telecom firm navigates fierce competition and regulatory headwinds. While BCE achieved a 1.5% increase in adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) with margins improving to 40.6%, revenue declined 0.8% amid sustained pricing pressures and legacy service declines.
Chief Executive Officer Mirko Bibic outlined a strategic roadmap focused on customer experience, network expansion, business technology services, and digital media transformation. The acquisition of U.S.-based Ziply Fiber represents a strategic pivot, expanding BCE’s North American fibre footprint to approximately 12 million locations by 2028.
However, BCE faces significant challenges. The company’s elevated debt leverage ratio of 3.8 times adjusted EBITDA exceeds its target of three times, and its dividend payout ratio remains outside the policy range.
Following a recent CRTC regulatory decision allowing competitors to resell BCE’s fibre network, the company is reducing planned capital expenditures and slowing its Canadian fibre build-out.
BCE aims to generate $1 billion in cost savings by 2028 through business transformation initiatives and is targeting up to $7 billion from non-core asset sales, including the pending divestiture of MLSE and Northwestel.
For 2025, BCE projects revenue between -3% and +1%, with adjusted EBITDA between -2% and +2%. Adjusted EPS is expected to decline 8-13%, though free cash flow is forecast to grow 11-19% due to lower capital expenditures.
The Foolish takeaway
Analysts expect BCE stock to report adjusted earnings per share of $2.83 in 2025. So, priced at 12.4 times forward earnings, the TSX tech stock might seem cheap. However, analysts remain cautious and have a 12-month target price of $36.78 for BCE stock, marginally higher than the current trading price.
The risk is clear for investors: BCE must balance its industry-leading dividend with necessary capital investments as it faces intensifying competition and price erosion, all while carrying significant debt in a higher interest rate environment.
