High-speed Fiber Expansion And AI Will Transform North American Connectivity

Key Takeaways

• Expanding fiber network and AI-driven solutions are fueling revenue growth, margin expansion, and diversification into high-margin enterprise segments.
  
• Digital automation and bundled offerings are reducing costs, increasing customer retention, and enhancing earnings resilience.
  
• Regulatory changes, competitive pressures, high capital intensity, and legacy media declines together threaten BCE's revenue growth, margins, and capacity to expand or maintain dividends.

Catalysts

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

• The rapid expansion of BCE's fiber network, further accelerated by the Ziply Fiber acquisition, positions the company to capitalize on rising demand for high-speed broadband amid ongoing digital infrastructure buildout in North America, supporting future revenue growth and margin expansion.
  
• Surging data consumption from streaming, cloud, and AI applications is increasing network utilization, which underpins persistent ARPU improvements and generates higher incremental revenues and earnings from both wireless and wireline segments.
  
• Momentum in BCE's AI-powered enterprise solutions (Ateko, cybersecurity, and Bell AI Fabric) is opening up new high-margin business lines, benefiting from the proliferation of AI workloads and digital transformation among Canadian enterprises, with positive implications for consolidated revenues and long-term EBITDA growth.
  
• Customer-first digital automation initiatives (e.g., AI-powered diagnostics, self-installation, and virtual assistants) are driving down operating costs and customer churn, translating into higher net margins and improving free cash flow generation over time.
  
• Effective cross-selling of bundled wireless and internet offerings, as well as BCE's growing scale in converged services, are boosting multi-product penetration and customer retention, supporting both top-line growth and earnings resilience across economic cycles.

BCE Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BCE's revenue will grow by 2.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 10.7% in 3 years time.
• Analysts expect earnings to reach CA$2.8 billion (and earnings per share of CA$2.96) by about September 2028, up from CA$433.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2028 earnings, down from 72.9x today. This future PE is greater than the current PE for the CA Telecom industry at 11.5x.
• 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 6.12%, as per the Simply Wall St company report.

BCE Future Earnings Per Share Growth

Risks

• The federal government's decision to expand mandatory wholesale access without altering CRTC's framework is prompting BCE to scale back Canadian fiber build-out, potentially capping fiber network expansion at around 8 million homes-this regulatory intervention could slow long-term revenue growth and pressure margins.
  
• Persistent competitive pricing pressures in wireless have resulted in declining service revenue (down 0.3% YoY) and ARPU, with improvement dependent on maintaining current pricing stability; ongoing intense competition and future market shifts could further erode net margins and profitability.
  
• BCE's outsize capital investment requirements, including increased leverage from the Ziply Fiber acquisition (net debt leverage is expected to rise to 3.8x by year-end 2025) and near-term high CapEx intensity, may strain free cash flow and limit available earnings to fund new growth or support ongoing dividends.
  
• Secular declines in legacy broadcast media, continued weakness in traditional TV advertising, and radio station divestitures mean BCE's legacy media businesses face long-term margin compression and revenue headwinds that might not be offset by digital gains.
  
• Slower fiber expansion in Canada due to regulatory changes and plateauing subscriber growth could limit the base for future broadband revenue growth, while the high dividend payout ratio and increasing compliance or CapEx burdens (especially related to ESG and network modernization) could further constrain net earnings and margin expansion.

Valuation

• The analysts have a consensus price target of CA$35.412 for BCE based on their expectations of its future earnings growth, profit margins and other risk factors. 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 analyst's consensus, you'd need to believe that by 2028, revenues will be CA$26.0 billion, earnings will come to CA$2.8 billion, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 6.1%.
• Given the current share price of CA$33.84, the analyst price target of CA$35.41 is 4.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.