AI And 5G Will Revolutionize Urban And Enterprise Connectivity

Key Takeaways

• Rapid expansion in U.S. fiber and digital media, coupled with strategic acquisitions, positions BCE for dominant market share and accelerated recurring revenue growth.
  
• Early leadership in AI, automation, and connectivity infrastructure enables higher margins, durable cost savings, and increased share in both consumer and enterprise segments.
  
• Secular declines in legacy services, regulatory pressures, capital intensity, and competitive threats to media and telecom segments constrain BCE's long-term revenue, earnings, and dividend growth.

Catalysts

A communications company, provides wireless, wireline, internet, streaming services, and television (TV) services to residential, business, and wholesale customers in Canada.

• Analysts broadly agree that the Ziply Fiber acquisition will be EBITDA-accretive, but current projections underestimate the speed and scale of penetration gains; Ziply is already outperforming expectations, and BCE's access to low-cost power, advanced infrastructure, and a PSP-backed capital structure means BCE could rapidly dominate unregulated U.S. fiber markets, sharply accelerating revenue and long-term earnings growth beyond consensus.
  
• Analyst consensus anticipates media revenue gains from BCE's digital pivot, but this discounts the potential for Crave and Bell Media's expanding digital ecosystem to become the default Canadian streaming and digital advertising platform; with direct streaming subscribers up 72% year-over-year and new bundled offerings, margin expansion and recurring revenue could accelerate much faster as BCE captures outsized share of exploding data consumption in media.
  
• BCE has quietly built first-mover advantage in Canada's critical AI infrastructure via the Bell AI Fabric platform; as the backbone for sovereign AI and high-performance compute, BCE is positioned to capture a disproportionate share of the coming enterprise AI boom, unlocking new high-margin B2B revenue streams as Canadian businesses collectively accelerate digital transformation, fortifying future free cash flow and margin growth.
  
• BCE's customer-centric automation and AI-powered self-service initiatives are not only driving cost savings, but are also reducing churn, boosting customer lifetime value and increasing bundling opportunities across wireless, Internet and TV products, which together structurally support lower operating costs and higher ARPU-all set to drive durable increases in net margins and profitability over the next several years.
  
• The combination of BCE's urban fiber/wireless footprint, robust rural expansion capacity, and positioning for smart city and IoT infrastructure puts BCE at the nexus of urbanization and enterprise connectivity trends; this means BCE will likely gain share in both consumer and enterprise segments, resulting in sustained top-line growth and incremental earnings generation as demand for reliable, high-capacity networks accelerates.

BCE Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on BCE compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming BCE's revenue will grow by 3.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 1.8% today to 11.7% in 3 years time.
• The bullish analysts expect earnings to reach CA$3.1 billion (and earnings per share of CA$3.33) by about August 2028, up from CA$433.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.7x on those 2028 earnings, down from 75.4x today. This future PE is greater than the current PE for the CA Telecom industry at 11.8x.
• Analysts expect the number of shares outstanding to grow by 2.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.09%, as per the Simply Wall St company report.

BCE Future Earnings Per Share Growth

Risks

• The ongoing decline in traditional wireline services and linear TV, combined with intensified cord-cutting and a consumer shift to streaming, threatens BCE's legacy revenue streams and puts long-term pressure on its top-line growth and net margins.
  
• Regulatory intervention, such as the newly expanded mandatory wholesale access regime and ongoing debates around compensation for network builds, may compress BCE's margins and restrain its ability to increase pricing on core telecom services.
  
• Slower growth in new telecom subscribers, as evidenced by references to a slowing market and reduced newcomer growth in BCE's own comments, reflects Canada's maturing and aging demographics, which will limit long-term revenue growth opportunities.
  
• Heavy and persistent capital expenditure requirements for network upgrades and new builds-notably in both Canada and with Ziply Fiber in the U.S.-will constrain free cash flow for several years and could hamper BCE's capacity to grow its dividend or make further investments.
  
• BCE's media segment remains heavily exposed to secular declines in TV advertising revenues and increasing competition from global streaming players, which could drag down consolidated earnings and net margins despite some recent digital gains.

Valuation

• The assumed bullish price target for BCE is CA$43.69, which represents two standard deviations above the consensus price target of CA$35.12. This valuation is based on what can be assumed as the expectations of BCE's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$45.0, and the most bearish reporting a price target of just CA$30.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CA$26.7 billion, earnings will come to CA$3.1 billion, and it would be trading on a PE ratio of 16.7x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of CA$35.03, the bullish analyst price target of CA$43.69 is 19.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.