BofA keeps BCE stock underperform rating, Cdn$36.00 target

On Monday, BofA Securities maintained its Underperform rating on BCE Inc . (NYSE:BCE:CN) (NYSE: BCE (TSX:BCE)), with a steady price target of Cdn$36.00. The firm’s analyst cited the company’s fourth-quarter results, which were marginally better than expectations, and a 2025 guidance that aligns with current market projections. The stock, currently trading near its 52-week low of $21.87, has experienced a significant decline of 35% over the past year. According to InvestingPro analysis, BCE appears undervalued based on its Fair Value assessment. However, the lack of a clear strategy to address dividend sustainability raised concerns about the stock’s potential performance relative to its peers.

BCE’s recent financial disclosure revealed fourth-quarter results that slightly exceeded analyst predictions. The company’s guidance for the year 2025 also met the mid-point of market expectations. While InvestingPro data shows BCE has maintained dividend payments for an impressive 55 consecutive years and currently offers a substantial 12.62% yield, the analyst from BofA Securities highlighted the absence of a detailed plan to tackle the looming question of dividend sustainability, which could lead to investor uncertainty regarding the stock’s future direction.

The analyst expressed a belief that without a well-defined plan, BCE might lag behind its competitors, prompting investors to question the stock’s potential downside rather than its growth prospects. The base case scenario posited by BofA Securities includes a predicted 50% reduction in dividends when second-quarter results are announced. This forecast coincides with an anticipated confirmation from the Canadian Radio-television and Telecommunications Commission (CRTC) of new fiber wholesale regulations during the summer, which are expected to disproportionately affect BCE.

The report by BofA Securities suggests that the current outlook for BCE is cautious, with specific challenges ahead that could impact the company’s performance. The analyst’s reiteration of the Underperform rating indicates a view that BCE’s stock may not fare as well as others in the sector, especially in light of potential regulatory changes and unanswered questions regarding its dividend policy.

In other recent news, BCE Inc. faced downgrades from both JPMorgan and BofA Securities. JPMorgan reduced its rating from Neutral to Underweight, and lowered the price target from Cdn$35.00 to Cdn$29.00, citing concerns about a potential dividend reduction and a high valuation compared to peers. BofA Securities, on the other hand, moved its rating from Neutral to Underperform and cut the price target from $45.00 to $36.00 due to anticipated growth headwinds, high leverage, and sustainability concerns regarding the company’s dividend.

JPMorgan analysts expressed concern over the potential for a dividend cut, as BCE’s management has indicated that the dividend and dividend policy are under continuous review. They also noted that BCE trades at a significant premium with an EV/EBITDA multiple of 6.7x for the year 2025 estimates compared to Rogers (NYSE:ROG) and Verizon (NYSE:VZ), which have multiples of 4.9x and 5.5x, respectively.

BofA Securities highlighted that the risks for BCE are tilted to the downside until the company can present a clear strategy to address its high leverage and dividend payout concerns. The new price target of $36.00 is based on a forward price to free cash flow (P/FCF) multiple of 9.0 times, which also corresponds to a forward enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 7.0 times.

These are recent developments and reflect the concerns of analysts from JPMorgan and BofA Securities about BCE’s financial health and future prospects.

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