BCE,(BCE 1.67%) Canada's largest telecommunications service provider, is a company taking the right steps. Not content to sit back and watch its traditional fixed-line access base erode, BCE has been investing in its wireless networks, as well as Internet and TV assets. Up against a sluggish Canadian economy, it is still on a growth path. Despite this, the company is down sharply from their 52-week high.
In fact, BCE and its fellow Canadian telecom stocks could hold value for the long term. They are taking sound approaches to build their wireless and Internet customer bases.
Canada's largest provider targeting growth
BCE's weakness has been partly a reflection of concerns that Verizon, the U.S. telecom giant, would soon enter Canada. This possibility seems less likely now that Verizon has chosen to buy back the 45% interest in Verizon Wireless currently owned by Vodafone.
BCE operates a moderately growing wireless business. Wireless segment revenues have been growing at a rate of 5% year-over-year, supported by customer transitions to LTE networks and heightened data usage. BCE is benefiting from past investments in its network and margin improvements are assisting wireless earnings. Segment operating earnings have been climbing at a 10% annual rate.
On that note, what BCE is aiming to do is improve the performance of its core, traditional wireline division. Faced with significant access line losses to wireless, and a slow economy, BCE is looking to high-speed Internet and TV for better results.
It is, in fact gaining subscribers in those offerings, particularly for its Fibe TV service. Plus, BCE recently acquired Astral Media, a provider of TV and radio stations. The acquisition is likely to help improve earnings going forward.
In addition to a declining access line count, BCE remains at risk of competitors taking aim at it in its wireless business. New entrants, or the expansion into its territory of existing ones, could cause challenges. For instance, be aware of this Canadian telecom, as well:
A smaller entity also with turnaround potential
The other Canadian telecom stock that was sold off sharply is TELUS (TU 1.09%). Here, too, the broad sell-off seems a bit unwarranted and the stock may have upside for a three to five year investor.
The basis for this outlook is a strongly growing wireless segment, and like BCE, an expanding high-speed Internet unit.
TELUS is experiencing several of the same positive and negative trends as BCE. Wireless earnings are being supported by rising data services revenue and higher calling revenue, a result of more mobile Internet connections--including tablet subscriptions. In wireline, it is benefiting from a high-speed Internet subscriber count growing at a 6% pace.
However, its net access line total, including residential and business lines, is trending 5% lower year-over-year.
TELUS is focused on rolling out 4G LTE next-generation services. It is also targeting growth businesses like wireless, data, and Internet Protocol (IP), factors that can make it a major competitive force.
If not for the burden of the deteriorating wireline business, TELUS, like BCE, would be a growth story. This brings us to the third and final Canadian telecom:
A strong player in wireless and cable
Finally, Rogers Communications (RCI +0.93%) is primarily a wireless services provider. It is also a major cable TV and Internet services company. Rogers has 34% and 31% share of these two markets, respectively.
The company stands out among the three Canadian telecoms due to its growing revenue and earnings from its two key segments. But it too could not avoid a steep sell-off of its stock earlier this year.
Rogers' EPS is steadily growing on a year-over-year basis. It is also deploying its wireless LTE network, and enhancing its video and data platforms.
Conclusion
After reviewing these sold-off Canadian telecom stocks, the best bet for turnaround potential seems to be TELUS as it sets its sights on higher-growth mobile-related operations. The company's stock seems poised for a recovery. The P/E ratio is 16.2 times trailing 12 month earnings.
BCE is looking to maintain its position as the top provider of telecom services in Canada. It is a potential solid choice for buy and hold investors. They also offer a solid dividend yield of about 5.2%. Rogers holds upside as a growth stock, while yielding 4%. Their appeal is limited a bit, though, by a sizable long-term debt load.
