Bombardier Inc. (TSE:BBD.B) has made a solid progress in executing its turnaround plan to reduce cost and is very much on track to achieve these turnaround goals
SmallCapPower | November 6, 2017: Bombardier Inc. (TSX:BBD.B), a leading Canadian manufacturer of both planes and trains, has seen its stock price jump more 12%, to its current price of $3.12, after announcing its third-quarter 2017 financial results on Thursday. Overall, it was a great quarter for Bombardier with significant improvements in the margins. Below is the snapshot from the Company’s filings.
Clearly, Bombardier has made a solid progress in executing its turnaround plan to reduce cost and is very much on track to achieve the turnaround goals set out in November 2015.
Additionally, Bombardier updated its 2017 full-year guidance with consolidated EBIT guidance before special items for the full year of $630 million or above, the upper end of our previous guidance range. On the flip side, consolidated revenue and free cash flow usage guidance for the year are revised to ~$16.3 billion and $1 billion, respectively, near the low end of the previous guidance ranges, to align with fewer C Series aircraft deliveries resulting from engine delivery delays from Pratt & Whitney.
Along with its third-quarter results, Bombardier announced that a European customer has signed a letter of intent (LOI) for up to 61 C Series, including 31 firm aircraft and options for an additional 30 aircraft. The LOI is subject to the execution of a purchase agreement, which is expected before year end. Based on the list price, a firm order would be valued at approximately $2.4 billion. This amount would increase to nearly $4.8 billion should all 30 options be exercised.
During the past few months, Bombardier shares have experienced significant up and down movements. It all started with the imposition of 220% import duties on the C Series by the U.S. Department of Commerce, which was further increased to 300%. This was a significant setback to Company’s turnaround plan, which had pinned much of its future growth prospects on the fate of its C Series jets. Bombardier stock price declined more than 10% due to this disastrous imposition. After this huge setback, the Company came back strong with some crucial orders for its C Series outside of the U.S. But it was the Airbus partnership that lifted Bombardier shares in October, surging more than 16% in a single day. Going forward, the combination of Airbus’ global reach and scale with Bombardier’s newest, state-of-the-art jet aircraft family is expected to drive commercial momentum and production cost savings. Also, this partnership could possibly mitigate the 300% import duty as the final assembly of the jets for the U.S. customers will be done at Airbus’s plant in Alabama.
Bombardier currently trades at a high forward PE of 36.88x and EV/EBITDA of 30.25x, which we believe takes into account the high-growth prospects of the C Series program as a result of the Airbus partnership.
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