BCE Inc. (USA) (BCE), Telefonica S.A. (ADR) (TEF): Foreign Telecoms for Your Portfolio

The shares of numerous European and Canadian telecommunications providers look to have significant upside at their current valuations either for the near term or long term. I have selected several companies to discuss, and decide where to invest based on their income and balance sheet metrics. Stock recommendations will follow.

A Canadian behemoth

Canada’s largest telecommunications provider, BCE Inc. (USA) (NYSE:BCE), operates through four segments:

1. Bell Wireline is a traditional land-line service and broadband business. It contributes about 52% of revenue, as of the last quarter.

2. Bell Wireless is responsible for another approximately 29% of total revenue.

3. Bell Media owns BCE Inc. (USA) (NYSE:BCE)’s television and radio stations, and was created through the April 2011 purchase of CTV. Its revenue is about 10% of the company total.

4. Bell Aliant is a telecom provider serving mostly rural Canadian regions. Its revenue is about 9% of BCE Inc. (USA) (NYSE:BCE)’s overall.

The wireless division is experiencing rising profitability behind an enhanced subscriber count, along with increased data usage. These gains are being supported by higher smartphone usage, partly stemming from lower phone prices.

Elsewhere, Bell Wireline would benefit from an accelerated upturn in the Canadian economy. Such trends ought to support improved earnings comparisons for BCE Inc. (USA) (NYSE:BCE) in the second half of 2013 and over the long term.

Such is the basis for my recommendation of BCE Inc. (USA) (NYSE:BCE) shares for long-term price gains and a solid yield, currently 5.5%. The stock is trading at a forward P/E of 13.0 as of this write-up.

Spain and Latin America’s largest bouncing back

Foremost, its Telefonica S.A. (ADR) (NYSE:TEF) Latino America unit contributed 51% of June-quarter revenue. Secondly, Telefonica S.A. (ADR) (NYSE:TEF) Europe brought in another 47% of the total (within this group is Telefonica S.A. (ADR) (NYSE:TEF) de Espana at about 23% of overall revenue.) Finally, Telefonica S.A. (ADR) (NYSE:TEF) Digital and Telefonica S.A. (ADR) (NYSE:TEF) Global Resources together provide a modest 2% of total revenue.

The company’s access line count is climbing across all businesses, fueled by gains in Latin America. In particular, mobile lines as a count grew 2% year-over- year in the latest quarter, while mobile broadband subscriptions advanced 7%.

With company-wide revenue returning to a growth trend, and the implementation of efficiency improvement initiatives likely to take hold, Telefonica’s bottom line ought to rebound going forward. Company margins are already above average for a telecom (see ratios).