Echelon Wealth Partners downgrades BCE to “Hold”

Following the company’s fourth quarter results, Echelon Wealth Partners analyst Rob Goff has lowered his price target on telco BCE (BCE Stock Quote, Chart TSX:BCE), if only slightly.

On Thursday, BCE reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted Adjusted EBITDA of $2.39-billion on revenue of $6.22-billion, a topline that was up 3.5 per cent over the same period a year prior.

“The fourth quarter capped off a successful year of robust subscriber growth together with strong increases in revenue, adjusted EBITDA and free cash flow in line with our guidance targets, all of which reflected the Bell team’s consistently strong operational execution and financial discipline in a highly competitive marketplace,” CFO Glen LeBlanc said. “Going into 2019, BCE’s operations and financial position are strong with a balance sheet that is underpinned by substantial liquidity to execute our business plan and a defined benefit pension plan that is very well funded. Our 2019 guidance targets are supported by a favourable financial profile for all Bell operating segments, with higher free cash flow generation enabling substantial ongoing capital investment in advanced broadband networks and services to support future growth, and a higher common share dividend for 2019.”

In a research update to clients today, Goff lowered his one-year price target from $60.00 to $59.00 and cut his rating on the stock from “Buy” to “Hold”. The analyst explained the reasoning behind the actions.

“Q418 results featured balanced, solid and largely expected financial/wired subscriber results while wireless was a modest disappointment. We look for modest forecast reductions adjusted for the IFRS impact (+$275M EBITDA, -$0.05 to EPS). Pre-quarter ratings balanced across Buy/Hold (10/9) with median return at 7.9%. Our target return of 8.2% warranted a move to hold. Near term risks include rates, wireless demand, spectrum auction.

Goff thinks BCE will generate Adjusted EBITDA of $10.07-billion on revenue of $24.0-billion in fiscal 2019.

“We continue to see BCE shares as a defensive holding,” the analyst adds. “It typically demonstrates a closer correlation with interest rates than its lower yielding domestic peers; however, the current spread of 344bps against 332bps one month ago, 322bps three months ago and 356bps as a three year average suggest recent yield moves are fully reflected. Operationally, its lower wireless mix suggests less variability but unfortunately it moderates longer term growth prospects.”