This Is Why I’m Bullish on Bombardier Stock
Bombardier, Inc. (TSX:BBD.B) was plummeting on the Toronto Stock Exchange. Shares slid 10% to settle at a lowly $0.88, representing a 25-year low for Bombardier stock.
It’s been a long slog for shareholders. In the early 2000s, Bombardier stock was valued in the $25.00 range. However, a combination of factors has pushed the company to the brink since.
Issues related to the “CSeries” delays have roiled investors.
It doesn’t help that a U.S. company, Comerica, has filed a $10.0-million lawsuit against Bombardier either. Comerica claims Bombardier was unable to find buyers for four “CL-600” private jets. Comerica wants a little more than $2.5 million per unit, plus interest and legal costs.
Time to throw in the towel? Hardly. Bombardier has a plan to turn things around and shareholders who get in on the ground floor could make a fortune.
Let me explain…
The company is investing in the CSeries single aisle 100–160-passenger airliner class. The new plane’s jet engine will be quieter and consume less fuel. Despite the delays, buyers still love the plane.
Air Canada calls the CSeries “fantastic,” but it is still evaluating the business case. Air Canada President Ben Smith says the company will continue to study the plan and see how the CSeries fits into the marketplace in 2016 and beyond. (Source: “Air Canada Is Still Studying the C Series,” Aviation Week, January 19, 2016.)
CSeries production problems have delayed deliveries. But after completing the first “CS100,” the company has ramped up to full output. The first delivery has been scheduled for the second quarter of 2016. (Source: “Bombardier starts CSeries production ramp-up,” Air Transport World, January 19, 2016.)
The CS100 has toured major North American cities during its route-proving program. Now, it’s heading to Europe. The CS100 received its “Type Certificate” from Transport Canada in December 2015. The larger “CS300” should be getting its certificate within the next six months as planned. (Source: Ibid.)
Still, the CSeries will enter service this year. Bombardier has 243 firm orders for the plane. If successful, cash flow from sales will provide a big boost to the firm’s bottom line.
Bombardier could also receive help from an unlikely place—the Canadian government.
The Conservative government issued sanctions against Iran and closed the Canadian embassy in Tehran. This made it tough for Bombardier to do business with Iran. But with a new party in power, this policy could be changing.
Bombardier could be a winner now, with sanctions being lifted against Iran. Earlier this week, Canada’s foreign affairs minister, Stephane Dion, confirmed that Canada would lift its sanctions against Iran “in accordance with our allies.”
“They are keeping sanctions to be sure that Iran will not have the capacity to be involved in nuclear military measures,” Dion said on Friday. “We’ll certainly be very responsible in our way.” (Source: “Canada to lift some sanctions on Iran,” CBC News, January 26, 2016.)
Bombardier could be a beneficiary—perhaps the main beneficiary.
“If Airbus is able to do it, why Bombardier would not be able to do it?” Dion noted. “In which way (is it) helping Canada, or the Iranian people, or Israel, or anyone that Canada is hurting its own industry?” (Source: “Stephane Dion says Iran sanctions not good for Montreal’s Bombardier,” 680News, January 27, 2016.)
While investors give up on the company, Bombardier is still a takeover candidate. Last year, rumors suggested Bombardier was in talks with Airbus Group SE (EPA:AIR). Both firms acknowledged discussions took place.
Such a move would be a win-win for both parties. Bombardier would get the support needed to complete the CSeries program. In exchange, Airbus would get a finished aircraft at a discounted price.
No deal was reached at the time. But with Bombardier stock trading below $1.00, I wouldn’t be surprised if a takeover took place. Such a deal would make sense with Airbus and a number of other possible partners.
In other words, Bombardier has plenty of upside left. While it may have fallen below the $1.00 mark, that’s no reason to give up on this company.