Yahoo Finance Analyst upgrades BCE to 'outperformer' amid telecom sector stock rout
While BCE (BCE.TO)(BCE) has lost billions in market value over the last year, one analyst has upgraded the company's stock to "outperformer" and does not expect changes to its dividend in 2024.
CIBC analyst Stephanie Price upgraded BCE's stock rating from "neutral" to "outperformer" on Monday, reiterating a $52 per share price target, noting that investor concerns about competition, interest rates and free cash flow growth have been priced into the stock.
"BCE is trading at a five-year trough multiple amid heightened competitive intensity, volatile interest rates and concerns around (free cash flow) growth," Price wrote in a research note.
"While we acknowledge the difficult competitive environment and the role of rates in telecom valuations, BCE appears attractive at current levels relative to the group."
The Canadian telecommunications sector has struggled in the wake of higher interest rates and heightened competition, with shares of BCE hit particularly hard. BCE's stock plummeted to its lowest intraday level in more than 10 years earlier this month in the wake of a grim outlook for Canadian telecoms published by BMO Capital Markets.
Shares of BCE were trading up one per cent on Tuesday, and are down around 13 per cent this year.
Price noted that another investor concern surrounding BCE is the potential impact of an upcoming CRTC decision regarding allowing smaller internet providers to use rivals' fibre networks to offer their services to customers. The CRTC issued an interim decision last November temporarily requiring Bell and Telus to provide competitors with access to their fibre-to-the-home networks in Ontario and Quebec within six months. At hearings in February, BCE urged the CRTC to implement conditions such as caps on eligible speeds.
Price says, based on the February committee hearings, "we believe that the impact to BCE should be relatively benign, given consolidation within the reseller space and the competitive wireline market."
There have also been concerns over the sustainability of BCE's dividend growth, which has seen its yield balloon to around nine per cent.
"We see no change to the dividend growth through 2024, with the dividend assessed annually by BCE’s board," Price said. However, that could change next year.
"We expect dividend growth to continue to be a longer-term focus given the pace of (free cash flow) growth amid a more competitive environment and continued fibre rollout, and we would not be surprised to see dividend growth adjusted post 2024."
Heightened competition still presents a downside risk for BCE, Price says, but notes that "we view it as unlikely that the pricing war continues indefinitely and expect the sector to eventually revert to a more traditional pricing environment."
Since Rogers closed its deal to purchase Shaw Communications last year, Canada's Big 3 telecommunications stocks have seen their market capitalizations collectively lose $27.5 billion, according to National Bank Financial analyst Adam Shine. In a research note sent to clients last Friday, Shine noted that BCE shares have been hit the hardest, "exacerbated by its 2024 (free cash flow) guidance, elevated dividend payout, and slow deleveraging profile."
"While we continue to wait for eventual rate cuts, wireless pricing and related competitive dynamics will need to get more rational to help Canadian telecom stocks resuscitate."
With files from The Canadian Press
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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