Last year, Canada's largest telephone operator
) reached all its financial targets including revenue, EBITDA,
earnings per share, and free cash flow on the back of higher
wireless revenue, improving wireline revenues, growing contribution
from its media business and cost reduction methods.
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The same trend continues this year as well. Healthy wireless and
increasing traction for the newly acquired media businesses boosted
the company's first quarter earnings that outpaced the Zacks
Consensus Estimate and the year-ago earnings.
BCE, which operates through its 100% subsidiary Bell Canada,
projects revenue and EBITDA growth of 3-5% and 2-4%, respectively,
this year. The company focuses on six strategies including
investing in broadband network and services, accelerating wireless
services, leveraging wireline momentum, expanding media leadership,
improving customer service and achieving a competitive cost
The company is enhancing its wireline and wireless video
capabilities with significant new investments in broadband networks
that are expected to generate higher revenue per user (ARPU) and
attract new customers. Besides, the operational cost savings will
help in offsetting the margin erosion arising out of the FibeTV
development and high-margin legacy voice and data revenues.
Additionally, acquisitions play a major role in driving the
company's earnings per share and free cash flow, thereby boosting
shareholders' return. Over the last three years, BCE raised its
annual dividends seven times, representing an increase of 49% since
the fourth quarter of 2008.
However, BCE operates in an environment crowded with new wireless
carriers and faces cutthroat competition from other national
Rogers Communications Inc.
). The wireline business also remains challenged by competition
from cable companies and other alternative service providers.
The company's revenue continues to face pressure from operations
that are lagging in the Internet protocol TV (IPTV) rollout. BCE is
experiencing a declining ARPU - the lowest among the three national
carriers - largely due to a fall in voice usage and roaming, as a
result of softness in the Canadian economy.
Further, continued investments in broadband network expansion on
both the wireline and wireless fronts could restrict the company's
profitability going forward in the form of higher depreciation
We are maintaining our long-term Neutral recommendation on the
stock. For the short term (1-3 months), BCE retains a Zacks #3