The stock of BCE (NYSE:BCE, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $45.14 per share and the market cap of $41 billion, BCE stock appears to be fairly valued. GF Value for BCE is shown in the chart below.
Because BCE is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 0.81% annually over the next three to five years.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. BCE has a cash-to-debt ratio of 0.01, which ranks in the bottom 10% of the companies in Telecommunication Services industry. Based on this, GuruFocus ranks BCE's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of BCE over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. BCE has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $17.2 billion and earnings of $2.076 a share. Its operating margin is 22.74%, which ranks better than 85% of the companies in Telecommunication Services industry. Overall, the profitability of BCE is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of BCE over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of BCE is -0.2%, which ranks in the middle range of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is -1%, which ranks worse than 69% of the companies in Telecommunication Services industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, BCE's ROIC was 6.67, while its WACC came in at 2.79. The historical ROIC vs WACC comparison of BCE is shown below:
In conclusion, The stock of BCE (NYSE:BCE, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 69% of the companies in Telecommunication Services industry. To learn more about BCE stock, you can check out its 30-year Financials here.
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