On Oct 13, Zacks Investment Research upgraded Canada’s leading communication service provider – BCE Inc. BCE – by a notch to a Zacks Rank #3 (Hold).
The company reported strong results in the second quarter of 2015 on the back of impressive performance by its wireless service division. Both the top and the bottom line of the company outpaced the Zacks Consensus Estimate.
Going forward, BCE’s wireless business is poised to benefit from solid subscriber addition at the postpaid segment along with increased data usage by smartphone users. As of Jun 30, 2015, the company had 7,206,453 postpaid subscribers, up 4.4% year over year. The total wireless subscriber base rose 2.2% to 8,124,824.
Meanwhile, the wireline segment is poised to record EBITDA growth on gains from an increase in Fibe TV and FibreOP TV customer count. As of Jun 30, 2015, TV subscriber count improved 4.4% year over year to 2.67 million.
To provide enhanced Internet speeds to 1.3 million homes in Ontario and Quebec, BCE’s subsidiary Bell Canada has launched Gigabit Fibe. Further, the company is planning to extend its Gigabit Fibe service to around 2.2 million homes by the end of this year.
The company’s Fibe customers will be able to upgrade to Gigabit Fibe for just $10 a month in a bundle. Bell Canada also stated that customers will initially be able to surf the Internet at the maximum speed of 940 Mbit/s. Notably, the company is investing C$1.14 billion (US $920 million) to raise browsing speeds to 1 Gbit/s or higher by 2016. This massive network upgrade project will create over 8,000 direct as well as indirect jobs in Ontario, including 2,400 direct jobs in Toronto.
In Apr 2015, Bell Canada revealed plans of investing $20 billion in Canada in the 2015–2020 period to enhance its broadband fiber and 4G LTE mobile networks. Such significant investments will help the company gain customers and also put a check on churn.
Meanwhile, for full-year 2015, BCE reaffirmed its financial guidance. The company expects adjusted earnings per share of C$3.28–C$3.38 while free cash flow growth is projected at around 8–15%.
However, persistent loss of large business customers in Network Access service will affect its wireline segment. In the second quarter of 2015, Network access services (NAS) lines fell 5.8% year over year to 6,903,652.
Also, the company’s local line access for traditional telephony service continues to face a decline among large customers owing to higher wireless substitution and migration to IP-based services. Further, certain headwinds such as stiff competition and union issues might continue to hurt profits.
Stocks to Consider
Better-ranked stocks in this industry are Nippon Telegraph and Telephone Corporation NTT, Cincinnati Bell Inc. CBB and Shenandoah Telecommunications Co. SHEN. While Nippon Telegraph and Telephone Corporation sports a Zacks Rank #1 (Strong Buy), both Cincinnati Bell and Shenandoah Telecommunications carry a Zacks Rank #2 (Buy).
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