NEW YORK (TheStreet) -- Big telecoms are under the regulatory microscope these days.
The FCC plans to fine AT&T (T) $100 million for harming its customers, following new rules regulating telecoms that took effect on June 12. AT&T, which is set to dispute the charges, claims that the FCC had previously approved of such practices. The FCC indicated that other telecoms might be fined for promising, but not delivering unlimited data.
On May 12, 2015, Verizon (VZ) agreed to pay $90 million in refunds to customers for charging premium text messages without authorization. As if that's not enough, Verizon is in hot water for not delivering internet or cable, through FiOS, to anyone who wants it. That being said, there are still reasons to invest in these companies.
So, what are the best integrated telecommunication services companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which integrated telecommunication services companies made the list. And when you're done, be sure to read about which highly volatile tech stocks to buy now. Year-to-date returns are based on June 18, 2015, closing prices. The highest-rated stock appears last.BCE data by YCharts
3. BCE Inc. (BCE)
Rating: Buy, B+
Market Cap: $36.5 billion
Year-to-date return: -5.5%
BCE Inc., a telecommunications and media company, provides wireless, wireline, Internet, and television (TV) services to residential, business, and wholesale customers in Canada. The company operates through Bell Wireless, Bell Wireline, and Bell Media segments.
"We rate BCE INC (BCE) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, good cash flow from operations and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- BCE's revenue growth has slightly outpaced the industry average of 2.9%. Since the same quarter one year prior, revenues slightly increased by 2.8%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- 48.55% is the gross profit margin for BCE INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 10.87% is above that of the industry average.
- Net operating cash flow has slightly increased to $1,045.00 million or 6.41% when compared to the same quarter last year. In addition, BCE INC has also modestly surpassed the industry average cash flow growth rate of -0.54%.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, BCE INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- BCE INC's earnings per share declined by 20.3% in the most recent quarter compared to the same quarter a year ago. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, BCE INC increased its bottom line by earning $2.97 versus $2.54 in the prior year.
- You can view the full analysis from the report here: BCE Ratings Report