Bombardier Inc.’s (TSX: BBD.B) stock price has slid from C$4.43 to as low as $1.03 per share throughout the past year. Given that much pessimism still prevails on Bay Street, why then is the analyst consensus target price so high?
Alex Cutulenco | September 29, 2015: Bombardier Inc.’s (TSX: BBD.B) stock price has slid from C$4.43 to as low as $1.03 per share throughout the past year, with most long-term investors still dreading over the unprecedented 80% wipe out in its share value since the 2011 highs. The company rakes in close to $20 billion in annual revenue, enticing much analyst coverage of the stock. In today’s edition, we do a roundup of what BayStreet analysts expect for its shares, including their average target price of C$1.79, which represents a 13% implied return.
The Company appears to be strapped for cash, as free cash usage totaled $1.6 billion in H1/15 (an H1 record for the company) and cash balances are down to a low of $3 billion. BMO analysts expect the Company to raise required financing by late 2016, in the range of $1.0 billion to $1.5 billion, in order to “weather the seasonally high burn in H1/17.”Bombardier’s future profitability is also questioned as operating margins come under pressure from the CSeries launch, recalibrating supply/demand in the business aviation segment, as well as a weaker euro.
Analyst at Scotiabank are far less optimistic in regards to the Company’s aerospace order flow, despite a peer-high target price of C$2. Analysts note the Company’s small backlog in aerospace products, citing the need for “~$35B in order flow over the next few years to support our five-year deliveries forecast.” This amounts to around 900 new plane orders, a significant amount considering a slowing cycle of fleet orders and unlikely recurred orders.
Analysts at JP Morgan, meanwhile, believe that the Company has tremendous amount of sentiment, with an RSI that has been in or near oversold territory since early July. The analysts like the new management team in place, yet citing the upcoming challenges on several fronts that will require major strategic changes. Lastly, TD analysts cite the August 14 letter reviewed by Reuters, indicating that Beijing Infrastructure Investment Co., a Chinese government-owned investment firm, offered to acquire 60-100% of Bombardier’s Transportation segment.
Bombardier reportedly rejected the offer one week later, indicating that the Company would not consider the sale of a majority stake at this time. Analysts believed that Bombardier did not agree on the price of the sale, noting that the management’s contention is that the division is worth more that the offered price.
Alex can be reach at: alex@gravitasfinancial.com
