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1 Simple Reason Bombardier, Inc. Has Upside Potential of 47%

As holders of the stock can attest, the last couple of years haven’t been great for Bombardier, Inc. (TSX: BBD.B).

The company is currently developing its line of CSeries business jets, which were originally slated to begin delivery in the second half of 2014. Thanks to various delays, in February the company announced it would delay delivery to the second half of 2015. Then, about a month ago, one of the prototype planes had an engine issue during a test flight. The issue has been traced back to the engine’s manufacturer, but it still wasn’t positive for current shareholders.

Since the shares peaked at more than $5.30 each back in October 2013, the various bits of bad news have forced them significantly lower to the $3.90 range, where they sit today.

Even though the CSeries development isn’t looking particularly bullish right now, there could be some decent upside if investors look at the stock at these depressed levels. In fact, there’s a really simple reason why I think that, sometime later next year, shares will easily surpass last October’s highs.

The market is just too down on Bombardier right now

Analysts’ predictions have their faults — after all, they’re just predictions — but they’re accurate enough for our exercise here. In 2014, analysts predict that the company will make $0.43 per share, and bump that to $0.47 per share in 2015. Over the last 12 months, Bombardier’s earnings have been a little weaker, coming in at just $0.30 per share. That’s good enough for a current P/E ratio of just less than 13.

Analysts are expecting earnings to rise next year because the company won’t be spending quite as much on CSeries development, and because they think the company will start to deliver jets in the second half of the year, just like it promised.

Based on the same P/E that the company has right now, which is 12.9, and its predicted earnings estimates for 2015, which is $0.47 cents per share, I estimate that shares could trade as high as $5.64 — a 47% upside from Wednesday’s closing price.

Obviously, this counts on the big assumption that the company will actually start CSeries deliveries in 2015. I’m confident it will, for a couple of reasons. First, Bombardier knows that it’s in a heap of trouble with investors if it delays deliveries again, and will want to avoid this at all costs. Secondly, the closer a project like this gets to completion, the less that can go wrong. Employees have already ironed out most of the kinks, or so one would think.

Besides, the CSeries jet is coming to market at some point, and there’s enough of a backlog already to keep workers busy on it for years. Also, once deliveries start, customers should order more.

Considering how all of the company’s current $0.30 per share earnings come from the rail division — profits that will still be there, and maybe even grow — any profits from the aerospace division are just gravy. However, at some point, those profits will come.

Ultimately, profits from the CSeries will lead the stock higher. Since the CSeries is expected to have a life of 15-20 years, investors can expect those profits to continue, at least until the next general aerospace slowdown. At this point, I can see a scenario where investors who buy at these levels get handsomely rewarded.

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Fool contributor Nelson Smith has no position in any stocks mentioned.

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