At Less Than $2 Per Share, Is Bombardier Inc. a Value Play?

Bombardier Inc. (TSX:BBD.B) released second-quarter earnings on July 30, and its stock has reacted by falling over 17%. Is it now a value play?

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Bombardier Inc. (TSX:BBD.B), one of the world’s leading manufacturers of planes and trains, announced better-than-expected second-quarter earnings results before the market opened on July 30, but its stock has responded by falling over 17% in the trading sessions since. The stock now sits more than 63% below its 52-week high of $4.43 reached back in December 2014, so let’s take a closer look at the results and its current valuations to determine if we should consider initiating long-term positions today, or if we should wait for an even better entry point in the weeks ahead.

The better-than-expected performance

Here’s a summary of Bombardier’s second-quarter earnings results compared with what analysts had expected and its results in the same period a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year-Ago
Adjusted Earnings Per Share $0.06 $0.05 $0.10
Revenue $4.62 billion $4.61 billion $4.89 billion

Source: Financial Times

Bombardier’s adjusted earnings per share decreased 40% and its revenue decreased 5.5% compared with the second quarter of fiscal 2014. The company’s steep decline in earnings per share can be attributed to its adjusted net income decreasing 24.5% to $145 million, while its slight decline in revenue can be attributed entirely to the negative impact of currency fluctuations. On a constant-currency basis, Bombardier’s revenues increased approximately 2%.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Revenues decreased 12.1% to $2.09 billion in its transportation segment
  2. Revenues increased 11.8% to $1.82 billion in its business aircraft segment
  3. Revenues decreased 20.7% to $598 million in its commercial aircraft segment
  4. Revenues decreased 2.3% to $472 million in its aerostructures & engineering services segment
  5. Adjusted earnings before interest, taxes, depreciation, and amortization decreased 8.6% to $329 million
  6. Free cash flow usage of $808 million, compared to a usage of $424 million in the year-ago period
  7. Backlog decreased 6.2% to $64.8 billion
  8. Available short-term capital resources increased 14.7% to $4.41 billion

Should you buy Bombardier today?

It was a solid quarter overall for Bombardier, and the results surpassed analysts’ expectations, so I do not think the post-earnings drop in its stock was warranted. With this being said, I think the drop represents a great long-term buying opportunity, especially because the stock now trades at very low valuations, including a mere 8.4 times fiscal 2015’s estimated earnings per share of $0.19, which is inexpensive compared with its five-year average price-to-earnings multiple of 11.5.

With all of the information provided above in mind, I think Bombardier represents one of the top value plays in the market today. Foolish investors should strongly consider beginning to scale in to long-term positions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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