Five Reasons to Buy BCE - RBC

If you need reasons to buy BCE Inc. (BCE), Jonathan Allen, analyst at RBC Capital has five good ones to spare. In fact, so good are the reasons, he was inclined to upgrade his rating from "sector perform" to "outperform," while maintaining his C$27 price target.

"Bell has better odds of exceeding market expectations, in our view," said the analyst, kicking off his list of BCE advantages.

Second, he says there is growing confidence in Bell's ability to stabilize and improve operations, with CEO George Cope in charge. Third, operations are predictable and should generate positive revenue/EBITDA growth in 2009.

Fourth, residential line losses may improve with the housing slowdown and lastly, BCE could benefit from its relatively low valuation compared to Rogers Communications Inc. (RCI), and Shaw Communications Inc. (SJR) and also its 6% dividend yield that is expected to grow modestly by 1% to 5% per year.

Mr. Allen said:

"In our view, Shaw and Rogers shares provide the best medium- and long-term upside for investors, and we have generally preferred cable stocks to the telco peers. Over the next 3-6 months, however, we believe BCE shares offer an attractive risk/reward alternative, especially for investors worried about a market correction."

Of course, the prospects for BCE aren't all rosy, and Mr. Allen is not without some concerns. To start he thinks companies like Rogers and Shaw have greater
leverage and upside to an improving economy and that cable assets have superior long-term growth prospects.

In addition, Mr. Allen worries that the timing and magnitude of an operational turnaround may "underwhelm." He also views the near completion of BCE's active C$1-billion stock buyback as a potential risk to shareholder value.