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On Jun 26, we maintained our Neutral recommendation on BCE Inc. (BCE - Analyst Report). The company has a robust wireless business and enjoys strong subscriber addition, drop in churn rates as well as strength in the media sector. However, the company faces certain headwinds that will likely slow down its growth momentum. The Canadian telecom firm holds a Zacks Rank #3 (Hold).

Why Maintained?

We believe that BCE will benefit from six strategic initiates including investment in broadband network and services, accelerating wireless services, leveraging wireline momentum, expanding media coverage, improving customer service and achieving a competitive cost structure. These measures are expected to generate higher revenue per user and attract new customers.

The company’s wireless unit is expected to drive growth in the coming days, backed by investments in network coverage, favorable geographic and customer segment mix, lucrative data plans as well as offering of net protection. On the wireline front, BCE is making steady progress on reducing the erosion of network access services lines, improving data service revenues, fiber-to-the-home deployments, expansion of IP connectivity and enhancing managed services.

Further, we expect to see strong contributions from the Bell Media segment that is poised to benefit from rate increases for the specialty channels, new agreements with the major players and launch of innovative products. We also appreciate BCE’s efforts to generate higher shareholder returns through dividend growth.

Despite these positives, we prefer to stay on the sidelines considering the risks such as stiff competition, the constant need for investments to remain technologically advanced and union issues. Moreover, we remain apprehensive that failure on the company’s part to achieve its set goals will affect its revenues and earnings.

The second and third quarters of 2013 have the Zacks Consensus Estimate for earnings pegged at 76 cents and 78 cents per share, respectively. This reflects a year-over-year decline of 25.3% in the next quarter and growth of 3.0% in the third.

Other Stocks

Companies operating within the communication sector that are worth taking notice of include Nippon Telegraph and Telephone Corporation (NTT - Snapshot Report), Telefonica Brasil, S.A. (VIV - Analyst Report) and TELUS Corporation (TU - Analyst Report). While the former holds Zacks Rank #1 (Strong Buy), the other two stocks carry Zacks Rank #2 (Buy).
 

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