It’s time to buy BCE, Paul Gardner says

A higher interest rate environment may have lured a lot of investors away from the utilities but companies like BCE (BCE Stock Quote, Chart TSX, NYSE:BCE) should be pulling them back, says Paul Gardner of Avenue Investment Management, who argues that BCE is both best in class and trading right now at a bargain price.

Like the rest of the telcos, BCE started dropping over the back end of 2017 as value-minded investors sought better opportunities elsewhere, yet unlike Rogers and Telus, BCE has had a hard time making up that lost ground. Now down 7.2 per cent year-to-date, the stock has shown some life lately, in part thanks to a strong third-quarter earnings report on November 1.

For its Q3, BCE posted a top line of $5.88 billion, better than last year’s $5.70 for the same quarter, while it earned $814 million attributable to shareholders or 90 cents per share, which on an adjusted basis came to 96 cents per share, better than the consensus expectation of 93 cents per share. BCE also added 135,000 net postpaid wireless subs for the quarter, a 15.5 per cent year-over-year increase.

Gardner says BCE has done well by investing in its fibre-optic network and upgrading the company’s Internet service to compete with cable-based providers.

“We like telcos over cable,” says Gardner, partner and portfolio manager at Avenue Investment, to BNN Bloomberg. “[BCE] is drilling the fibre to the homes and they’re almost done in all of Toronto, they’re done in most of Ontario.”

“We love the dividend,” he says. “Their payout isn’t that aggressive, their balance sheet is pristine, they’re one of the best in class. We like BCE’s footprint and their assets, including media assets, versus Telus who is a little more expensive and their free cash flow yield is not as good BCE’s.”

BCE recently rebranded its Crave TV over-the-top service, now offering a suped-up version which includes content from HBO, Showtime, Hulu and TSN, its majority-owned sports network, all in attempt to compete with streaming service providers Netflix and Amazon Prime.

“With BCE, we think there’s tremendous opportunity and it does trade cheap — on an EV/EBITDA it trades about seven times and that’s historically a little cheaper than the norm,” says Gardner.