Today we're going to take a closer look at large-cap Telecommunications company BCE, whose shares are currently trading at $46.48. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
BCE Inc., a communications company, provides wireless, wireline, Internet, and television (TV) services to residential, business, and wholesale customers in Canada. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, BCE has a trailing 12 month P/E ratio of 22.1 and a P/B ratio of 2.34.
BCE's PEG ratio is 11.03, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Stable Revenues With Increasing Reinvestment in the Business:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $23,964 | $22,883 | $23,449 | $24,174 |
| Gross Margins | 42.2% | 42.0% | 42.2% | 68.4% |
| Operating Margins | 23.8% | 22.7% | 22.5% | 22.6% |
| Net Margins | 13.32% | 11.51% | 12.11% | 11.86% |
| Net Income (MM) | $3,191 | $2,634 | $2,840 | $2,868 |
| Net Interest Expense (MM) | -1,195 | -1,156 | -1,102 | -1,095 |
| Net Interest Expense (MM) | -$1,195 | -$1,156 | -$1,102 | -$1,095 |
| Depreciation & Amort. (MM) | -$4,398 | -$4,404 | -$4,609 | -$4,723 |
| Earnings Per Share | $3.37 | $2.76 | $2.99 | $2.1 |
| EPS Growth | n/a | -18.1% | 8.33% | -29.77% |
| Diluted Shares (MM) | 901 | 904 | 907 | 912 |
| Free Cash Flow (MM) | $3,970 | $3,466 | $1,089 | $3,229 |
| Capital Expenditures (MM) | -$3,988 | -$4,288 | -$6,919 | -$5,136 |
| Net Current Assets (MM) | -$33,263 | -$33,648 | -$37,617 | -$40,327 |
| Current Ratio | 0.56 | 0.69 | 0.68 | 0.57 |
| Long Term Debt (MM) | $22,415 | $23,906 | $27,048 | $27,783 |
| Net Debt / EBITDA | 2.64 | 2.9 | 3.07 | 3.29 |
BCE has stable revenues and increasing reinvestment in the business, strong margins with a stable trend, and consistent free cash flow. However, the firm suffers from slimmer gross margins than its peers and declining EPS growth. Finally, we note that BCE has significant leverage.
