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Bombardier, Inc.: What’s Going On?

Bombardier, Inc. (TSX:BBD.B) is up nearly 15% in the past week, and investors who have been waiting for a chance to buy the stock are wondering if this is the time to make a move.

Let’s take a look at some recent developments to see if Bombardier should be in your portfolio.

Siemens merger rumours

A Bloomberg report says Bombardier and Siemens AG (ADR) (NASDAQOTH:SIEGY) might be in discussions to merge their rail operations.

The potential hook-up would create a new business worth more than $14 billion (€10 million) and hold the signaling and train manufacturing operations of the two companies.

Bombardier’s rail group has struggled in recent years with problems ranging from a botched signaling contract in the U.K. to extensive delays on a streetcar order for Toronto to challenges connected to a light rail vehicle contract with Ontario’s Metrolinx.

The U.K. issue stems from a €340 million contract Bombardier won in 2011 to upgrade signaling on the London Underground. In 2013, the contract was cancelled as Bombardier was unable to complete it.

The city of Toronto has threatened to sue Bombardier for the streetcar delays, and Metrolinx is trying to cancel its 2011 contract for up to 182 LRVs.

Chinese competition

Manufacturing issues can be sorted out, but threats from Chinese competitors might be the main driver behind a potential tie-up with Siemens.

Bombardier lost two U.S. bids in recent years to state-owned Chinese firms. The deals in Boston and Chicago were the first wins by Chinese train makers in the United States. If the Chinese companies deliver the trains on time and according to the contract, more cities could follow.

A joint-venture partnership between Bombardier and Siemens would help both companies compete with the Chinese firms, who are aggressively targeting deals around the globe.

Should you buy?

Investors seem to like the rumour. At this point, I would be careful chasing the recent surge.

Bombardier is making progress on its turnaround efforts, but a lot of work has to be done. The company is still burdened with significant debt and faces ongoing challenges in its business jet and CSeries groups.

If you like Bombardier’s prospects and have a contrarian investing style, a small bet might be of interest on a pullback, but I would avoid the stock for now.

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Fool contributor Andrew Walker has no position in any stocks mentioned.

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