BCE Offers Compelling Value

| About: BCE Inc. (BCE)

BCE has sold off from the $42.75Cdn takeover price, since the deal is all but dead. Investors with a long-term investment horizon looking to obtain a regular cash flow should consider a long position in this company.

Technical charting analysis:

N/A due to sell-off. Target price dependent on fundamental health for company.

Fundamental Analysis:

Revenue is made in five areas: local long distance, wireline, wireless, Internet, and media. Its key competitors are Telus (NYSE:TU) and Rogers (NYSE:RCI). Rogers is a compelling growth play in this space. However, with growing evidence that the recession will stretch beyond mid-2009, BCE offers value at a time when growth stocks might take the hardest hit.

Investors need to ask what BCE can offer them in a post-privitization failed world. Strong cash flow, solid dividends, re-instating dividend (over 1B would be owed), potential moderate growth in wireless (solo, for example) and internet (sympatico) are all attractive features for this company.

The stock is currently trading well below fair market value @$18.07, a result of investor disappointment for a failed takeover. At minimum, this company should trade back at the pre-bid price of $25. With growing cash flow over the next 5-10 years, the company offers compelling value for investors who buy in today.

The wireless segment - Bell Mobility - is especially attractive. It has been almost 3 years since the company botched up its billing system and angered subscribers. In that time, competitors have gained market share/subscribers. With that past behind BCE, the company is now forging an alliance with Telus to offer a 3G-like network. This should be sufficient in competing with Rogers.

Satellite television is mediocre at best but does expose the company's name to customers. The company may therefore try to cross-sell its offerings to customers.

I set a 2 year target price of $US25 (2008 P/E = 8), and a long term price target of $US35 (P/E = 11.21).

I am entering a position gradually, due to lingering volatility on the stock prior to news that the takeover is "officially dead."

Disclosure: Long BCE.