Bombardier Stock Bears Ignoring Company’s Potential
Many investors still treat Bombardier, Inc. (TSE:BBD.B) like some third-rate sideshow act, yet the company is as “main event” as any of its bigger rivals, including Boeing Co (NYSE:BA) or Airbus. Therefore, it’s not surprising that despite having secured a major deal to sell 75 “CS100” planes (worth $5.6 billion at current prices) with options for 50 more with Delta Air Lines last week, many investors have sold their Bombardier stock in a profit-taking spree.
That take-the-money-and-run attitude is what’s plaguing Bombardier stock. It’s a premium company that has been performing like a penny stock. The good news is that anyone, regardless of the number of digits in their bank statements, can afford to own Bombardier shares. Sooner rather than later, the company will start to maintain its gains and hold its target price instead of trading like a yo-yo on the chart.
The first sign that Bombardier is going to sustain its gains is already on approach. JetBlue Airways has resumed talks with Bombardier about a possible order for “C Series” planes, suggesting the Delta sale has built momentum for Bombardier. As we noted last week, more U.S. airlines are likely to inquire about acquiring the C Series now that Delta has committed; they simply have more reason to be confident that Bombardier will deliver.
Indeed, Bombardier and JetBlue had already talked about the airline acquiring C Series planes last fall, but negotiations broke off after two months, according to Bloomberg. (Source: “Bombardier said to hold talks on C Series order from JetBlue,” The Globe and Mail, October 15, 2015.)
If JetBlue places an order, it will be the second-largest C Series sale after Delta Air Lines. JetBlue currently operates a fleet of 60 Embraer SA “E190” aircraft with a capacity of 100 passengers each, as well as approximately 160 larger-capacity Airbus aircraft. The smaller version of the C Series, the CS100, can accommodate 108 to 133 passengers, while the larger version, the “CS300,” can seat 130 to 160 passengers.
So why, considering the optimism of more orders—and if JetBlue signs, you can be sure others will follow—is Bombardier finding it so hard to sustain its big gains? Well, it may have something to do with politics.
The provincial government of Quebec has given Bombardier all kinds of financial support, recently releasing $1.3 billion in aid for the C Series. The Canadian federal government, however, has been more cautious; it does, after all, have to consider the opinions of all Canadians. For this reason, Bombardier needs to improve its political image outside of Quebec.
The media has not been kind to Bombardier. Rather than focusing on its main image products—being its airplanes and the C Series in particular—the English language media (i.e., those writing outside Quebec) have focused on the Bombardier-Beaudoin family and the money they have received from taxpayers. (Source: “Good times and bad, the winds always blow money in Bombardier’s direction,” National Post, April 29, 2016.) Rather than enjoying the technological success of a Canadian company in such a prestigious industry as aerospace, many influential media have focused on the subsidies that Bombardier gets.
However, the authors of such articles fail to mention the huge expense of developing a new airliner. The safety considerations alone force aerospace companies to spend weeks pondering the worthiness of every component, from bolts and rivets to the tires on the landing gear.
And Bombardier is not alone in receiving subsidies, nor does it get the most government support out of its peers. In comparison, Boeing and Airbus get millions—if not billions—in subsidies and tax incentives, weapons programs, and, in the case of Airbus, actual government majority ownership. Likewise, Embraer in Brazil is also majority-owned by the government.
It would surely help if Bombardier completed its streetcars for the Toronto Transit Commission on time, but investors who know the company know the key to the stock now is the C Series airliner. The past few weeks have shown the C Series program is strong and the sales potential is beginning to materialize.
At $2.00 per share, Bombardier stock is a bargain.