Bombardier Stock Could See a Major Boost This Week
Bombardier, Inc. (TSE:BBD.B) continues its recovery toward the $2.00-per-share mark and beyond. On Monday, Bombardier stock hit a year-to-date high of CA$1.80 on the Toronto Stock Exchange. Just how high could Bombardier shares reach in 2016 is difficult to predict.
The reason for the difficulty is that the company has so many winds in its favor that setting a longer-term price target—within reasonable limits, of course—is futile. Who could have predicted a few months ago when Bombardier stock was trading at some $0.77 that it would bounce back so strongly by the first four months of 2016? Actually, we at Profit Confidential did. This is no feather in our cap, though; simple logic pointed us to this conclusion.
The main driver for Bombardier’s stock performance, or at least its most visible indicator of market performance, is the company’s new “C Series” airliner. Bombardier makes trains, public transport systems, business jets and regional airliners. On April 25 it sold four “CRJ900” regional jets in a contract valued at some $185 million (Source: “Bombardier secures $183.9M regional jet order,” Canadian Manufacturing, April 25, 2016.)
If the key to Bombardier’s stock performance is the C Series, just how good is this aircraft? This is the key question because it is challenging established players like Boeing Co (NYSE:BA) and Airbus in a ruthless market.
Well, it turns out that the C Series is so good that Boeing is starting to feel the pressure. The U.S. giant is considering creating a new variant of its popular “737” to have a better chance at competing with the Bombardier C Series, said The Wall Street Journal. (Source: “Boeing Considering New 737 Model To Fend Off Bombardier Jet,” The Wall Street Journal, April 25, 2016.)
Baptized as the “737 MAX 7X” internally, Boeing’s plane would transport about 150 people in two classes and have a relatively long range. It would replace the “737 MAX 7,” whose typical capacity is 126 passengers. The “737 MAX 8” can accommodate 162 passengers, while the Bombardier’s “CS300” model can accommodate 130 to 150 people. Bombardier has already considered a 160 to 180-seat variant known as the “CS500” due to pressure for such an aircraft from Delta Air Lines, Inc. (Source: Ibid).
Earlier this year, Boeing outplayed Bombardier by winning an order for 65 airliners from United Airlines, but Delta could well confirm its order with Bombardier for 75 aircraft before April 29.
The big unknown is Brazil’s Embraer. Embraer is about to launch its second generation “E-Jet” series, which is similar in type and performance to Bombardier’s C Series. Bombardier has the June 2016 commercial launch date for the C Series on its side, while Embraer will launch its equivalent airliner in 2018.
Embraer could sweeten its deal by cutting the price significantly. Most analysts believe this is where Bombardier is left weaker. Yet, Bombardier could get Canadian government aid in helping it overcome Embraer’s pressure, by compensating the Montreal-based plane maker for any major discounts it needs to secure the deal, if it comes to that.
Bombardier stock could be in for a major bullish move in the week ending April 29. Bombardier has postponed its annual meeting and first-quarter results to that date from April 28. The last time anything like this occurred, the company used the opportunity to confirm Air Canada’s order for some 50 C Series aircraft in an announcement that coincided with its 2015 fourth-quarter results. Therefore, on April 29, it could well confirm the Delta order. (Source: “Bombardier nears deal with Delta: Report,” The Toronto Star, April 15, 2016.)
It’s not an enviable task to bet on Bombardier or Embraer winning the major Delta order. But, calculated gamblers would pick Bombardier. Delta’s CEO has praised Bombardier’s C Series on various occasions. Last January, Delta said it was taking a “serious look” to purchase the C Series. (Source: “Bombardier’s C Series Jet Earns Praise From Delta’s Chief,” Bloomberg, January 19, 2016.)
The C Series has collected 243 firm orders so far. The plane has already sent shockwaves throughout the industry with its new Pratt & Whitney engine with “Geared Turbofan” technology, which gives the C Series the efficiency it needs for Bombardier to break into the market that, until now, has been dominated by Boeing and Airbus.
In the unlikely event that Bombardier will not get the Delta order, the stock will no doubt crash. Again, it will be a temporary drop.
Bombardier is rumored to be working on a massive deal to supply C Series airliners to a new Iranian airline in the Strait of Hormuz. (Source: “Iran Is Interested To Create A New Carrier With Bombardier Aircraft,” Appnews, April 7, 2016.)