Bombardier Shareholders Got Bombed

Bombardier shares fell sharply on the back of a disappointing earnings release. Might this slide represent an opportunity?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The S&P/TSX Composite closed lower for the second (gasp!) day in a row on Thursday.  One of the leading causes of today’s decline, checking in with a 9% slide, was Bombardier (TSX:BBD.B).

As is so often the case, the financial press and sell side analysts have keyed on income statement related metrics to justify today’s sharp decline.  The income statement however is a very poor indicator of this company’s performance due to the nature of the business.  Multi-period projects that involve bringing a sizeable backlog to life is what Bombardier does, and this model does not fit well with income statement accounting.  Predicting what this company is going to “earn” in any one quarter is at best a wild guess.

To cut through the noise and gain a better handle on Bomber’s condition, use the other two financial statements – namely, the balance sheet and statement of cash flows.

Balance Sheet

In the spirit of cutting through the noise, we’ll focus on one balance sheet related metric.  Total Debt.  We begin with long-term debt.  At the end of 2012, this amounted to $5.4 billion.

Let’s now consider “other liabilities” such as Government refundable advances – these “others” amount to $1 billion.  That’s $6.4 billion total if you’re keeping track at home.

Last on our list is the pension deficit, calculated by subtracting the fair value of plan assets from the present value of the defined benefit obligation.  This sits a snick under $3 billion.

$9.4 billion of Total Debt.  Perfectly acceptable if you’re Apple and carry Shareholder’s Equity of $127 billion.  Perfectly unacceptable if you’re Bombardier and carry Shareholder’s Equity of $1.4 billion.

Yes, the company has $2.9 billion of cash sitting on the balance sheet, but still, if the financial wind blows in the wrong direction, the good ship Bomber is going to heel.

Cash Flow Statement

Accentuating the financial risk that Bomber presents is the company’s cash flow statement.  One of the traits of an investable company is a proven ability to consistently generate free cash flow.  Bombardier “generated” -$792 million of free cash flow in 2012, which was a significant improvement over the -$1,257 million that was “produced” in 2011.  A small sample size, but not numbers that are typical of a quality company.

The Foolish Bottom Line

Even if we ignore the financial risk and lack of free cash flow, Bombardier is a company that I would consider “too hard” to invest in.  The financial statements and accompanying notes are enough to make the head of a casual observer spin.  Greener pastures exist.

Bombardier shares were $5 each 10 years ago (closed at $3.89 today) and very well could be at a similar level 10 years from now.  Given the fickle nature of its order driven business, sustained momentum is tough to come by for this company and the fact that it is carrying the huge albatross of financial risk does not help.  In my opinion, rolling the dice on Bombardier is a risky move with a non-apparent return.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any of the companies mentioned in this report at this time.  David Gardner owns shares of Apple.

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.

More on Investing

value for money
Dividend Stocks

2 Canadian Stocks Trading at Unheard of Prices

Dirt-cheap stocks are a dime a dozen, but a few of them offer you a valuable opportunity, as they trade…

Read more »

oil tank at night
Energy Stocks

Oil Finally Crashed: Is the Party Over?

Recently, oil stocks like Cenovus Energy (TSX:CVE) crashed. Is the energy party over?

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

Is Suncor Stock a Buy Right Now?

Suncor has delivered outsized gains to investors in 2022 and might continue to do so for the rest of the…

Read more »

edit Sale sign, value, discount

3 Cheap TSX Stocks to Buy Before July

Canadian markets have bounced back, but investors can still snag undervalued TSX stocks like Finning International Inc. (TSX:FTT).

Read more »


Is Blackline (TSX:BLN) Stock Worth Your Attention in 2022?

Blackline Safety Corp. (TSX:BLN) stock has struggled in the year-over-year period, but there are some positives to glean from its…

Read more »

stock analysis

Why I’m Buying the Dip in Andlauer (TSX:AND) Stock

Andlauer Healthcare Group Inc. (TSX:AND) stock offered exposure to two promising spaces while offering solid value in late June.

Read more »

clock time
Tech Stocks

Now’s the Time to Load Up the TFSA With These 2 Top TSX Stocks

Here are two top TSX stocks that long-term growth investors may not want to give up on, especially at these…

Read more »

data analyze research
Energy Stocks

TSX Stock Picks With Huge Potential

If you want a TSX stock that's bound for even more strong growth, these three are top picks by analysts.

Read more »