Bombardier Stock Gets a Big Upgrade
The Royal Bank of Canada reiterated its “Outperform” recommendation and $2.50 target price for Bombardier, Inc. (TSE:BBD.B) in a note to investors. But that’s not as interesting as the fact that Scotiabank, which had dissed the new “C Series” airplane’s chances in 2014, has re-thought its bearish stance on Bombardier stock.
Scotiabank has also turned bullish on Bombardier stock. It is not especially generous in the target price, given its $2.00 indication. Still, its new “Sector Perform” rating, dated June 24, is a bullish sign for Bombardier stock. The aerospace-focused analysts have praised Bombardier’s C Series effort, noting that production delays and cost overruns are unavoidable in the present aerospace industry.
Lately, Bombardier’s competitors have fared no better at meeting deadlines. Their financial performance was sustained by older and more established airliner models, but new programs incurred technical and administrative delays similar to Bombardier. Just consider Boeing’s wing design and battery fire problems with the “787” and the sheer production difficulty that Airbus had to confront with its “380 Jumbo.” Boeing and Airbus suffered billions in extra costs and they’re still not making money.
Nobody can blame Bombardier for failing to be ambitious. The company’s C Series marked a major departure from its purely regional jet production experience. Instead, the new airliner is taking on direct competition from Boeing and Airbus. It had to be not just on par with these two gigantic aerospace companies but better. Bombardier’s growing order book has certainly suggested it has a winner in the C Series. This technical marvel has already started to help BBD.B stock.
Surely, Bombardier stock faces a long-haul route before the turnaround delivers its full bullish effects. Still, there is no doubt Bombardier has entered the turnaround phase. The risks are noteworthy, but Bombardier stock, at its current price of $1.96 per share, should deliver a satisfying performance for those who can withstand some turbulence over the next year or so. If nothing at all, Bombardier management has shown it can hold its course against the toughest odds. Bombardier has vindicated its decision to pursue the ambitious C Series program with successful sales at Air Canada and Delta Air Lines, which were announced earlier this year.
However, Bombardier continued stubbornly and delivered the first C Series to its launch customer, Swiss Global Air. The plane is ready to start its official service on July 15.
The official commercial service start is important to Bombardier stock. Other airlines will note that the plane is there and available. They don’t have to doubt Bombardier’s ability to deliver, so they can place orders.
And rather than implying Bombardier is on life support, investors should see the government of Quebec’s $1.0-billion investment in the company as an assurance that it can get the planes built. Remember that airplane manufacturers don’t get paid by their customers until the planes are delivered.
Finally, one of the main reasons investors may want to be bullish on Bombardier is that the C Series has special features that could win over potential customers.
One of the main reasons is its quiet performance. Noise levels are a loud topic in many jurisdictions in Europe and North America. Residents near some airports, like the Toronto Island airport in Canada, complain about noise vociferously. If these residents listen to the arguments rather than populist rhetoric, they will learn that the C Series emits 50% fewer decibels than other planes in its market category. It also uses less fuel and emits less CO2. It is a granola-crowd-friendly plane. It also offers comforts that the business customer will appreciate, such as large storage bins, a better view thanks to larger windows, and more seat room.
Bombardier has gotten 300 firm orders, which could potentially reach 800 if customers exercise their options. The bottom line on Bombardier stock is that the C Series program—whose delays and overruns have dragged down BBD.B stock—has defied analysts’ pessimistic expectations. The C Series is here and about to start service. Bombardier stock’s bullish upturn, which started last spring, should get another boost in the next few weeks from these improvements.