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On Friday, JPMorgan analysts downgraded BCE Inc . (NYSE:BCE:CN) (NYSE: BCE (TSX:BCE)) stock from Neutral to Underweight and reduced their price target from Cdn$35.00 to Cdn$29.00. The downgrade was attributed to lowered long-term estimates, valuation compared to peers, and an increased chance of a dividend reduction. According to InvestingPro data, BCE currently maintains a market capitalization of $21.49 billion and shows relatively weak financial health metrics, with an overall Financial Health Score of 2.35 out of 5.
In their analysis, JPMorgan highlighted several factors influencing their decision. They pointed out that while BCE’s focus on asset monetization and debt reduction is positive, the company’s management has indicated that the dividend and dividend policy are under continuous review. This is mainly due to the need to optimize the capital structure while maintaining an Investment Grade rating, likely influenced by pressure from rating agencies.
The analysts at JPMorgan expressed concern over the potential for a dividend cut, given the competitive, macroeconomic, and regulatory pressures facing the ecosystem. Although not currently modeled in their estimates, they suggested that a reevaluation of the payout ratio by BCE’s board is possible, particularly considering the current high dividend yield of 11.92%. InvestingPro data reveals that BCE has maintained dividend payments for 55 consecutive years and raised them for 16 straight years - get access to 6 more exclusive ProTips and comprehensive dividend analysis through InvestingPro’s detailed research reports.
The report also compared BCE’s valuation to its peers, noting that BCE trades at a significant premium with an EV/EBITDA multiple of 6.7x for the year 2025 estimates. This is compared to Rogers (NYSE:ROG) and Verizon (NYSE:VZ), which have multiples of 4.9x and 5.5x, respectively. Current InvestingPro data shows BCE’s EV/EBITDA at 8.08x, with concerning metrics including a current ratio of 0.62 and debt-to-equity ratio of 2.84. Based on InvestingPro’s Fair Value analysis, BCE currently appears overvalued relative to its fundamentals. Additionally, BCE’s growth is described as slower, with flat EBITDA through approximately 2027, as opposed to a 2% compound annual growth rate (CAGR) at Rogers and Verizon. BCE’s valuation is also in line with AT&T, despite AT&T’s double-digit EPS and free cash flow per share CAGR through approximately 2027 and accelerating capital returns.
In conclusion, JPMorgan’s revised price target of C$29 implies a 6.2x multiple on BCE’s projected 2026 EV/EBITDA. The analysts believe that a dividend reduction, while potentially beneficial for BCE’s long-term growth, could lead to a more than 20% decline in share value upon announcement.
In other recent news, BCE Inc. saw a downgrade from BofA Securities from Neutral to Underperform, citing the need for the company to address high leverage and concerns about the sustainability of dividends. This downgrade comes amidst concerns of growth headwinds for 2025 and the projection of the company’s dividend to exceed 120% of its free cash flow based on the midpoint of its 2024 guidance.
In its Q3 2024 earnings call, BCE reported a 2.1% increase in consolidated EBITDA and a 10.3% rise in free cash flow. However, the company revised its 2024 revenue guidance downward due to lower-than-expected product sales and a challenging wireless pricing environment. Additionally, the company is undergoing a transformation to modernize its operations, which includes the strategic acquisition of Ziply Fiber to enhance its U.S. fiber market presence.
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 firm has set a new price target of $36.00 for BCE, which is based on a forward price to free cash flow multiple of 9.0 times, reflecting the perceived risks associated with BCE’s leverage and the potential for a reduced dividend in the future.
These recent developments underscore the importance of BCE’s disciplined approach to growth and operational efficiency in a competitive market. Despite revising revenue guidance downwards, the company is making strides in operational efficiency and modernization, which are expected to contribute to long-term growth and stability.
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