BCE Inc. - Growth & Income

Earnings estimates for BCE Inc. (BCE) have been surging over the last several months as BCE has delivered three consecutive positive earnings surprise.

The Canadian communications company produces strong cash flow and has been rewarding its shareholders through stock buy backs and dividend increases. It currently yields 5.1% and is a Zacks #2 Rank (Buy) stock.

Third Quarter Results

Third quarter earnings per share came in at 82 cents, well ahead of the Zacks Consensus Estimate of 72 cents.

Operating revenues increased 1.3% year-over-year. Not surprisingly, much of this growth was driven by its wireless division (up 8.1%), while its wireline segment continued to fall (down 0.9%).

Meanwhile, operating income increased 11.1% while free cash flow was up a solid 25.1% to $812 million.

Returning Value to Shareholders

BCE has been using that strong cash flow to buy back shares and pay a generous dividend. The company spent $125 million in the quarter repurchasing approximately 4.1 million shares, for instance.

BCE also pays a dividend that yields a juicy 5.1%. Its payout ratio of 68% is a little higher than its peers, but within the company's target payout of 65% to 75%.

Rogers Communications (RCI), for instance, pays out 44%, while TELUS Corp (TU) pays out about 67%.

Outlook

Earnings estimates have been surging over the last several months, as seen in the company's Price & Consensus chart:

The Zacks Consensus Estimate for 2010 is $2.82, corresponding to 20% growth over 2009 EPS. The 2011 estimate is 4% higher at $2.94.

It is scheduled to report its results for the fourth quarter and full year 2010 on February 10.

Valuation

The valuation picture looks attractive with shares trading at 12.2x forward earnings, a discount to the industry average of 13.6x. Its price to book ratio of 1.8 is also below the peer group multiple of 2.1.

Company Description

BCE Inc. is Canada's largest communications service provider and serves as the holding company for Bell Canada. The company provides local and long-distance phone service to approximately 70% of the Canadian population, primarily in Ontario and Quebec.

In addition, it provides wireless services, data communications, Internet access, and direct-to-home (DTH) satellite television services through its various subsidiaries.

It headquartered in Verdun, Quebec, Canada and has a market cap of $27.4 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
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