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Key Takeaways for BCE Stock:
- Investors sold BCE on news of a restructuring that will see nearly 10% of the workforce cut. We are concerned that Bell is adding to business uncertainty by mentioning regulators in the announcement of the move.
- Bell intends to transition into tech services and digital media, but the move might not be fast enough to make up for the potential decline in core wireline and wireless segments subject to regulation.
- We see Bell stock as undervalued, but the company will need to ensure its re-imagined investment plans don’t impair its current competitive positioning.
Andrew Willis: Would you trade a few cents extra in dividends for greater uncertainty? With the recent news of job cuts at Bell Canada, BCE stock (BCE) sold off significantly, but the situation may have been made worse by the company using regulations as a backdrop for the restructuring.
Senior equity analyst Matthew Dolgin says the problem with Bell’s aggressive stance toward regulators is that the company’s wireless and fixed-line businesses are highly regulated - and they generate far larger profits than alternative ventures. BCE intends to transition from a traditional telco to a “tech services and digital media leader,” but that growth is going to take some time.
Bell Canada’s Evolution is a Delicate Bet
It’s understandable that given the modest growth expected in BCE’s two biggest segments, wireline and wireless, the company would be seeking to evolve – but its reimagined investment plans shouldn’t come at the expense of competitive positioning. That said, there are still 2 million landline telephone customers at Bell Canada, demonstrating that customers often prefer the classics.
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I’m Andrew Willis.
BCE Bulls Say
- The immense network improvement resulting from BCE's fiber-to-the-home buildout will lead to further wireline share gains and margin improvement.
- The Canadian government’s goal of significantly increasing immigration should prompt high levels of subscriber growth for all wireless incumbents.
- BCE’s free cash generation should have upside as it has now passed the bulk of the capital spending associated with its fiber network overhaul.
BCE Bears Say
- A combined Quebecor and Freedom Mobile should make for a strong fourth national wireless competitor, and it will likely undercut the Big Three on price, limiting pricing power and pressuring margins.
- Regulators' preference for competition and presence in the industry will keep a lid on incumbents' profits and business potential, and BCE is a leader in both wireless and wireline.
- Landline phone and linear video services are both in secular decline. With more exposure to those services than any peer, BCE’s top-line growth may lag peers’.
The author or authors do not own shares in any securities mentioned in this article.
