Bombardier 2018 Guidance Disappoints

Bombardier Inc. (TSX:BBD.B) target revenues in the range of $17.0 billion to $17.5 billion, which represents a YoY increase of ~$1.0 billion

SmallCapPower | December 18, 2017: Bombardier Inc. (TSX:BBD.B), the world’s leading manufacturer of planes and trains, recently released its 2018 guidance with target revenues in the range of $17.0 billion to $17.5 billion, which represents a YoY increase of ~$1.0 billion over 2017 guidance, at the mid-point of the range. This growth is expected to be driven by the ramp-up of key projects at Bombardier Transportation and higher C Series aircraft deliveries. Bombardier also confirmed that its five-year turnaround plan remains on track.

Read: Bombardier (TSX: BBD.B) Stock: Is it Worth the Risk?

Shares of Bombardier slipped 2% to $3.07 following the announcement.

With the turnaround efforts driving stronger performance across the portfolio, EBITDA before special items for 2018 is anticipated to be in the range of $1.15 billion to $1.25 billion and targeting to achieve free cash flow breakeven in 2018. Breakeven free cash flow of +-$150 million represents an improvement of ~$1.0 billion over Bombardier’s 2017 guidance, mainly driven by improving working capital investments and lower development costs as the Company’s heavy investment cycle comes to an end with the Global 7000 expected to enter service in the second half of 2018.

Over the next three years, Bombardier’s objective is to grow revenues by 7% CAGR to $4.0 billion, double the EBITDA before special items to more than $2.25 billion and aims to deliver free cash flow of $750 million to $1.0 billion by 2020.

Bombardier President and CEO Alain Bellemare said, “As we approach the half-way point of our five-year turnaround plan, we continue to meet our commitments and build a strong foundation for generating sustainable profit growth. We remain very much on track to achieve our 2017 guidance, our 2018 free cash flow goal, and see a clear path to deliver on our 2020 objectives.”

Following the closing of its C Series partnership with Airbus, Bombardier will deconsolidate the C Series program. While 2018 guidance assumes the continued consolidation by the Company of the C Series program for the entire year, 2020 objectives reflect the deconsolidation of the C Series program. So investors should be careful while going through this 2018 guidance, because if the closing of the C Series partnership with Airbus occurs before the end of 2018, the resulting deconsolidation will have an impact on the Company’s reported results.

Bombardier stock currently trades at a low price to TTM sales of 0.42x. Since the Company generates low operating margins, an appropriate valuation metric would be EV/EBITDA, which Bombardier trades at 30.20x.

Disclosure: Neither the author nor any of the principals at SmallCapPower, or their family members, own shares in the company mentioned above.

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