Bombardier Stock: This Is a Big Deal for Bombardier, Inc.
There Is More than One Way to Be Bullish on Bombardier Stock
Investors and regular folks alike know Bombardier, Inc. (TSE:BBD.B) best from its airplanes. Many travelers from the the Americas to Africa, Asia and Oceania have probably flown on a Bombardier plane. Bombardier stock tends to respond most, up or down, to the performance of its aerospace division.
But there’s much more that warrants investors’ attention. Bombardier makes everything from airplanes to trains and recreational machines.
Bombardier stock, yes, tends to move around the aircraft division. The new “CSeries” airliner and its delays have been the most to blame for BBD.B shares’ descent in 2014 and 2015. The CSeries has also been responsible for bringing Bombardier back to operating altitude. Shares are in a better place than a year ago, yet investors forget about all the other activities that generate revenue for Bombardier.
Bombardier confirmed last Friday the signing of two contracts totaling $1.2 billion in the United Kingdom. The deals allow the company to maintain 1,000 jobs at its plant in Derby, England. This news is good for Bombardier stock. Evidently, the deal brings much-needed revenue, while the avoidance of labor action helps to save costs and sustain a favorable image for the company as a whole.
Under the contract, Bombardier will deliver 665 railcars to Abellio East Anglia. This company is part of Abellio Group, a Dutch-based private enterprise that owns railway concessions in the U.K. The plan is part of a wider initiative to improve rail service in the region of East Anglia. This could make it the largest such deal since railways were privatized in the U.K., especially since Bombardier has also signed a $108.0 million maintenance contract.
Bombardier Has Upside on Two Fronts Thanks to New Railway Contract
The railway contract suggests upside for Bombardier stock on two fronts. It will remind railway companies and BBD.B shareholders that Bombardier is one of the leading manufacturers of trains on the planet. The railway division has assets around the world and, at worst, it can generate significant revenue should head office ever decide to divest the non-aerospace assets.
The fact that this billion-dollar deal comes just as the aerospace division has delivered the first CSeries jets to the launch customers is a bonus that adds shine to the BBD.B letters. The effect on the market is that Bombardier can deliver, prompting airlines and rail providers to feel more confident about the company and its ability to deliver.
The cherry on the proverbial cake comes from the fact that the railway company and the CSeries launch customer—Swiss International Air Lines AG—are both in Europe. This puts it in a good light to win more sales from both units in that continent, where regional jets like the CSeries and railways benefit from high demand.
As for the delay, Swiss International Air Lines, which was expecting to get nine planes—it has two so far and expects a third by October—before 2017, has shrugged it off. Bombardier shareholders reacted far more pessimistically than warranted. The airline said it had anticipated the delay, and that it has a “painless” plan to manage it.
The Swiss airline learned about the CSeries’ engine delays much sooner than the markets did. Meanwhile, the first “CS300,” a larger version of the “CS100” that Swiss International Air Lines is operating, was delivered to Air Baltic Corporation AS in Latvia, the world’s first user of this aircraft.
Bombardier, moreover, has also extended its agreement with China Railway Rolling Stock Corporation (CRRC), which will continue to give it an edge in bidding successfully for tenders in China and around the world. Bombardier is bidding for a major $800.0-million contract in Israel to upgrade the existing urban commuter railway system. So Bombardier stock has considerable opportunities for upside, when you break it down into more components.
