Bombardier Stock: Weighing the Good Against the Bad

May 29, 2019 03:00 AM PST

In 2016, Bombardier Inc. (TSE: BBD.B) was rumoured to be on the brink of bankruptcy. In the midst of budget overruns, schedule delays, and numerous mechanical problems with their CSeries program, shares fell below C$1—a far cry from the stock’s $26 peak at the turn of the millennium.

Buoyed by intervention from the Canadian government, stock for the plane and train manufacturer managed to clamber up to C$5 last year. Yet the company failed to maintain gains, plagued by debt, mismanagement, layoffs, and bad press, and the stock slipped back to the C$2 range.

Today, Bombardier’s stock sits at a grim C$2.05. The company is at a crossroads, caught between fears that CEO Alain Bellemare’s ambitious turnaround plan is losing steam, and hopes that a slate of upcoming moves may help them regain some much-needed traction.

Investors are torn as to whether this is the perfect time to buy Bombardier stock, or whether you should keep the company away from your portfolio with a 10-foot pole. And while I’ll shy away from any firm recommendations, it’s certainly useful to dig into the good and the bad of the troubled Canadian manufacturer.

The Bad

It’s no coincidence that Bombardier stock has dropped more than 60% over the past year.

Last fall, the company cut over 5,000 jobs, damaging investor confidence. Not long after, the stock plummeted 20% in a single day, responding to reports of a Quebec probe into the company’s controversial executive stock sale program. Though the probe officially cleared the company of wrongdoing, the damage had already been done. The company then lost a C$989 million rail order, when Canada’s state-owned Via Rail opted for the German company Siemens to supply new locomotives. Chinese manufacturer CRRC is expected to attempt to muscle in on more of Bombardier’s turf in the coming years, particularly in the United States.

Then there’s the matter of Bombardier’s finances. The company’s Q1 report revealed revenues down 13% from last year, with EBIT down 15% and operational cash flow down C$436 million. Not a good sign for a company struggling under around $9 billion in debt. Add all this to the company’s international reputation for big delays as well as project and repair hiccups, and it’s clear that this is a business in serious trouble.

The Good

That said, there are a few glimmers of light on the horizon. Chief among them is the company’s May 28 announcement that it was currently the top bidder for a 15-year, C$4.5 billion monorail project in Egypt. If signed, the deal would be the first rail order over $1 billion since way back in 2014.

The company is actively cutting a wide slate of costs with an eye toward future profitability, with plans to consolidate much of its aerostructures business, a move that will give them some financial breathing room and allow them to “zoom in on the businesses that are going to create the most value for [their] shareholders,” as Bellemare recently told analysts on a conference call.

The company projects $8.5 billion annual revenue by the end of 2020, a massive increase from 2018. As Amy Legate-Wolfe writes in a bullish article for The Motley Fool, earnings lately have been better than expected, with earnings per share “ a surprise at $0.07, up from estimates of $0.03.” She predicts that Bombardier stock could resettle at $5 a share by the middle of next year.

Whatever your take on the situation, it’s hard to deny that an investment in Bombardier stock is a risky move. If they’re able to execute on their current plans, you could stand to make a tidy profit—but that’s a big if. Regardless, the Canadian market will certainly be watching to see whether this once-great transportation giant can recover a piece of its former glory.

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