Better Buy: BCE Stock or Telus Stock?

Amid the recent pullback, let’s assess which among BCE and Telus would be an excellent buy for long-term investors.

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The telecom industry has been under pressure over the last 12 months amid rising interest rates. Investors are worried that higher interest rates could increase the interest expenses of capital-intensive telecom companies, thus hurting their margins. Amid the recent corrections, let’s assess BCE (TSX:BCE) and Telus (TSX:T) for any buying opportunities for long-term investors.

BCE

BCE reported its second-quarter performance in August, with its operating revenue growing by 3.5%. The growth in services and product revenues, with the company adding 241,516 customers during the quarter, drove its top line. However, a decline in revenue from the media segment offset some of the growth. Despite the top-line growth, its adjusted EPS (earnings per share) fell 9.2% from the previous year’s quarter. The decline was primarily due to higher interest, acquisition, and other expenses, including increased severance expenses due to its workforce reduction initiative.

Meanwhile, BCE is growing its fibre and 5G networks to deliver faster mobile and internet speed to a larger Canadian population. The company is on track to expand its 5G service to 85% of Canadians by the end of this year and 5G+ service to 46%. Besides, management also expects to add 650,000 new fibre connections this year. The expanding customer base could boost its financials in the coming quarters. Meanwhile, the company is lowering its capital intensity with most of its infrastructure in place, thus providing more free cash flows to distribute among shareholders.

Supported by its solid cash flows, BCE has raised its dividends by over 5% yearly for the previous 15 years. Also, its forward yield stands at a juicy 7.37%. Amid the weakness in the telecom sector, the company has lost around 5% of its stock value over the last 12 months and trades at an attractive NTM (next 12 months) price-to-sales multiple of 1.9.

Telus

Telus also reported its second-quarter performance in August, with record total customer growth of 293,000. Also, its ARPU (average revenue per user) increased by 1.8% while its churn rate remained lower than 1% at 0.91%. Supported by these solid operating metrics and strong performance from its high-growth segments, the company’s operating revenue grew by 12.8%. Despite the top-line growth, its adjusted EPS declined by 40.6%. Higher depreciation, amortization, financing, and restructuring expenses weighed on the telco’s financials.

Meanwhile, Telus has continued its capital expenditure program, expanding its pure fibre and 5G coverage. By the end of the quarter, its 5G network covered 84% of the country’s population, while the purefibre network reached 3.1 million locations. Along with these initiatives, strong performances from its other segments, such as Health and Agriculture & Consumer Goods, could support its financial growth in the coming quarters.

Telus has rewarded its shareholders by raising dividends for 20 consecutive years. Also, its forward yield stands at a healthy 6.32%. Further, management is confident of increasing its dividends at an annualized rate of 7-10% until 2025. Meanwhile, amid the broader weakness and weaker earnings, e stock has lost 11.8% of its value this year and trades 1.6 times analysts’ projected sales from the next four quarters.

Bottom line

With inflation remaining sticky, the central banks won’t be in a hurry to lower their interest rates. So, I expect both stocks to remain volatile in the near term. Meanwhile, the correction has provided excellent buying opportunities for long-term investors in both stocks. However, I am more bullish on Telus due to its exposure to other growth sectors and cheaper valuation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends TELUS. The Motley Fool has a disclosure policy.

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