Bombardier Stock Could Be Heading Back to a Bullish Course
Bombardier, Inc. (TSE:BBD.B) has shown clear signs of a rebound. Investors were more than satisfied that the company has room to grow after it released its latest quarterly results. Hope is one of the factors that drives valuations. Now that Bombardier stock has risen almost 13% over the past five days, the question is whether it can sustain this bullish sentiment.
The short answer is that Bombardier has shown sufficient improvement in key areas. Therefore, Bombardier stock deserves the wave of hope that it has experienced. The company has focused on improving its critical financial indicators. Should the company sustain this trend in the third quarter, it will help strengthen management’s credibility and could propel BBD.B stock back to this year’s highs of $2.20-$2.25 before the end of the year.
In turn, investors and analysts will have more confidence in BBD.B stock’s potential and in the ambitious growth plan until the start of the next decade. Surely, one of the key signs pointing in this more efficient direction for Bombardier is the fact that the company has cut spending. The Montreal-based plane-maker used up 20% less capital than expected in the third quarter. It saved US$320.0 million. (Source: “Bombardier Jumps as Slowing Cash Burn Shows Turnaround on Track,” Bloomberg, November 10, 2016.)
Bombardier Has Not Relied on Federal Support for Financial Turnaround
Bombardier did receive support from the Province of Quebec in the form of a $1.0-billion investment. But it has not yet received confirmation of federal support. Its cost-cutting achievement suggests that management has found a more sustainable way of improving efficiency. This may not seem like much in the grand context, but consider where Bombardier was just over a year ago.
As admitted by its CEO, Alain Bellemare, barely a year ago, Bombardier, Inc. was considering asking for bankruptcy protection. The company’s notorious cash crunch and related high costs had become untenable. (Source: “Bombardier on ‘brink of bankruptcy’ in 2015, CEO reveals,” The Globe and Mail, November 11, 2016.)
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Now for the facts. Bellemare’s restructuring is working. The margins of the aerospace division have reached 6.4%. Analysts had expected almost a full percentage point less. The railway division performed even better at 7.9%, significantly more than the six-percent consensus forecast.
What remains a concern is that Bombardier’s “CSeries” jet has not yet received major new orders. Similarly, analysts worry that low oil prices have weakened demand for business aircrafts, because so many used to be ordered by oil (and mining) companies.
Bombardier Stock Could Benefit from Trump’s Election
As for CSeries orders, many airlines have held off. They want assurances that the company will survive financially. Assembling airplanes involves complex industrial plans and massive capitalization. Airplane manufacturers make their money on delivery. Air Canada (TSE:AC) and Delta Air Lines, Inc. (NYSE:DAL) have placed large orders for CSeries planes.
If Bombardier can deliver the initial requests on time, or with minor delays, the company could easily win more orders from the same airlines, and others. Bombardier has already achieved initial targets of 300+ orders, while current customers are likely to bump up their order books. As for executive jets, BBD.B stock is one of those set to benefit from Donald Trump’s election.
Trump could be a boon to the business aircraft market in general. In every segment of the industry, Bombardier has a contender. If Trump can push through his pro-business agenda, including lower taxes, that could certainly help.
Lower sales of business jets—except maybe at the highest end of the market—have undermined efforts to revive that market since the demand collapse that followed the financial crisis of 2008.
Any policies that Trump (or anyone else, for that matter) implement that encourage business and growth would benefit BBD.B stock.
Alain Bellemare added that, due to the global nature of the aviation industry, it is unlikely that Donald Trump would get involved in a sharp tariff conflict to protect Boeing Co (NYSE:BA), which is based in the state of Washington. (Source: “Bombardier says Trump presidency is unlikely to affect operations,” The Globe and Mail, November 10, 2016.)
If Bombardier can keep up its game plan to cut costs and deliver on schedule, BBD.B stock could make further gains in 2017, potentially climbing to the $2.20-$2.25 level, where it was trading for much of the spring and summer. Or it could move higher still, given that Bombardier stock has already shown its ability to manage the risks that many analysts have attributed to it.