On Dec 19, we maintained our Neutral recommendation on
Canadian telecom major
). We believe management's six strategic initiatives will deliver
stable profits in the coming quarters. However, acquisition costs
from the Astral takeover might impede margin growth. The leading
telecom operator holds a Zacks Rank #4 (Sell).
The company's investment in broadband network and services,
accelerating wireless services, leveraging wireline momentum,
expanding media coverage, improving customer service and
competitive cost structure will help the company to tap new
customers and enhance revenues.
The acquisition of Astral operations has raised revenue
expectation by 2% to 4% for 2013. Astral has already started to
deliver meaningful performance and is expected to be fully
accretive over the next year supporting earnings and free cash
flow growth at Bell Media. Acceleration in Fibe TV and Fibe-based
Internet growth will be accretive to the company's wireline
Substantial investments in network coverage, customer
retention, lucrative data plans, launch of new handsets as well
as offering of net protection are expected to be beneficial to
the company's wireless segment. The company expects to see higher
ARPU (average revenue per user) from a favorable geographic and
customer segment mix, accelerating smartphone activation and
expansion of its 4G Long-Term Evolution (LTE) networks.
Moving forward, the company expects cash severance and other
acquisition costs associated with the Astral acquisition.
Further, the long-term debt associated with the acquisition of
Astral could increase the interest expenses of the company. As a
result, the company projected that the acquisition provides the
company with limited scope to fortify its free cash flow position
The company's local line access for traditional telephony
service continues to decline due to wireless substitution and
higher competition. This is reflected by persistent erosion in
overall network access services on an annualized basis, hurting
revenues and EBITDA of local and long-distance operations.
Competition could increase for BCE moving forward as the
French telecom giant is considering entry into Canada's wireless
market. These risks force us to remain cautious on the stock.
Better-ranked companies within the telecommunication sector
Hawaiian Telcom Holdco Inc.
Chungwa Telecom Company Ltd
Level 3 Communications Inc.
). HCOM carries a Zacks Rank #1 (Strong Buy) while CHT and LVLT
stocks currently carry a Zacks Rank #2 (Buy).
BCE INC (BCE): Free Stock Analysis Report
CHUNGHWA TELECM (CHT): Free Stock Analysis
HAWAIIAN TELCOM (HCOM): Free Stock Analysis
LEVEL 3 COMM (LVLT): Free Stock Analysis
To read this article on Zacks.com click here.