Despite uncertainty, Canada’s economy has demonstrated strong resilience over the past year. That strength has been reflected in the stock market, with the S&P/TSX 60 Index, which comprises the country’s 60 largest publicly traded companies, rising by more than 19%. Most of Canada’s top stocks have participated in this rally, rewarding investors handsomely. But not all companies have kept pace. A few have moved in the opposite direction, making them an attractive bargain buy. One such stock is BCE Inc. (TSX:BCE).
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Why did BCE stock underperform?
BCE, a prominent player in the Canadian communications sector, has seen its stock price drop approximately 22% over the past year. This decline in BCE stock can be attributed to several factors, including economic uncertainty, inflation affecting consumer spending, regulatory challenges, and intense pricing competition.
Given the ongoing challenges, BCE reported a 1.3% year-over-year decrease in operating revenues for the first quarter (Q1) of 2025, primarily driven by lower product and service revenues. Additionally, the company lowered its annual dividend to $1.75 per share from $3.99 per share. For a company that had built a reputation for stable and growing dividends, the cut was a disappointment to investors.
BCE’s fundamentals remain solid
While BCE faces challenges, its outlook isn’t entirely bleak. There are compelling reasons to view the current weakness as a long-term buying opportunity. BCE’s fundamentals remain solid, and the company is diversifying its revenue streams by expanding into digital media and content, and continuing to grow its subscriber base. These initiatives could help lay the groundwork for a more resilient and future-ready business model.
Importantly, the dividend cut will help the company to improve financial flexibility. By reducing the payout, BCE is freeing up cash to accelerate its debt reduction goals, aiming to bring its leverage down to 3.5 times adjusted EBITDA by the end of 2027, with a longer-term target of three times. This financial discipline could strengthen the company’s balance sheet and position it for renewed growth.
While BCE may not be rallying alongside the broader market, the current valuation reflects much of the recent pessimism. For value-oriented investors, this could be an opportunity to pick up shares of a fundamentally strong company at a discount.
BCE is ready for a turnaround
BCE is steadily setting the stage for a solid turnaround. After years of heavy investment in fibre and 5G networks, the company is poised to reap the benefits. These next-generation networks offer faster speeds, lower latency, and enhanced security, which are key drivers of subscriber growth and customer retention. In Canada, BCE’s expansive fibre footprint is helping grow its internet customer base and capture market share. Moreover, its U.S. fibre operations offer strong economics, with low build costs and rising average revenue per user.
The company’s recent announcement of the acquisition of Ziply is another strong catalyst. Ziply’s fibre-powered growth comes from a diversified mix of consumers, including SMBs and enterprises. With the deal set to close in late 2025, the acquisition is expected to boost BCE’s top and bottom lines.
BCE is also teaming up with PSP Investments to expand the fibre network in underserved U.S. markets. This partnership reduces capital pressure while supporting BCE’s growth prospects in the U.S.
BCE is also pushing ahead with its digital media strategy. With Canada’s digital ad market expected to grow at a healthy pace, the company is targeting meaningful share gains. Growth plans include expanding its subscriber base, enhancing its leadership in sports content, and scaling digital inventory. Further, its recent majority stake in Sphere Abacus boosts content reach and monetization potential.
While the company is focused on delivering sustainable growth, cost-cutting and divesting non-core assets will strengthen BCE’s bottom line and support its share price.
In short, BCE’s long-term fundamentals suggest a recovery is in the making, making it a bargain buy near current levels.
