Is Now the Time to Gamble on Bombardier Inc.?

Bombardier Inc. (TSX:BBD.B) may have finally turned the corner. Is this a stock you should hold?

| More on:

On Thursday morning, Bombardier Inc. (TSX: BBD.B) reported earnings for the third quarter of 2014, and there was a lot to like. Revenue rose by 20% year-over-year to $4.9 billion, and adjusted income increased by 35%. Excluding one-time costs, the company’s adjusted earnings per share beat analyst estimates by 25%.

Those one-time expenses are related to nearly 3,000 layoffs. This restructuring is expected to save the company nearly US$270 million per year. And there are other reasons to be optimistic. Flight testing for the CSeries jet is progressing well, having now reached 450 hours.

The quarter did not go perfectly. Quebec cut some tax credits by 20%, a move that was denounced by Bombardier CEO Pierre Beaudoin. Also, the company put off negotiations to assemble turboprop planes in Russia, due to the political situation there. Such a move was to be expected.

That being said, there were some very positive aspects to the earnings release. So is now the time to bet on Bombardier? Well, not necessarily. Let’s take a look at two big reasons to stay away.

1. Cash flow issues

Bombardier continues to use cash at an alarming level. This quarter, free cash flow came in at negative $368 million, worse than the negative $184 million that was forecast. This is likely the main reason why Bombardier’s stock fell.

This negative cash flow has put tremendous pressure on Bombardier’s balance sheet. The company’s long-term debt now stands at $7.6 billion, up from $5.4 billion at the beginning of 2013.

In the near term, there is enough liquidity to keep Bombardier afloat; the cash balance stands at nearly $2 billion, and another $1.4 billion is available through a credit facility. But if the company keeps burning cash — which it surely will do if delays continue for the CSeries jet — then this could change, especially since $750 million in debt is due in early 2016.

2. The CSeries

As mentioned, testing for the CSeries jet has picked up, and Bombardier still plans to release the plane in the second half of next year.

But numerous analysts aren’t convinced, and this includes an analyst at Goldman Sachs. One other experienced analyst even used the words “borderline delusional” to describe Bombardier.

If these analysts are right, and the CSeries is delayed yet again, it could spell big trouble. Costs would surely spike, cash flow would continue to be negative, and the balance sheet would deteriorate further.

Granted, Bombardier could prove these analysts wrong. But is that really a chance you need to take? Instead, you should avoid this company and look for a more reliable name instead. Five companies you may want to consider are revealed in the free report below.

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 Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Happy family father of mother and child daughter launch a kite on nature at sunset

3 Soaring Stocks to Hold for the Next 20 Years

These three stocks are good bets for the long haul, given their healthy long-term growth prospects.

Read more »

grow dividends
Tech Stocks

Celestica Stock Is up 44% Since Earnings: What Investors Need to Know

Celestica continues to benefit from strong demand and production efficiencies, yet the stock remains undervalued.

Read more »

A plant grows from coins.

2 Dividend Stocks Paying 5% or More That Could Beat the Market in 2024 and Beyond 

Here are two top dividend stocks long-term investors may certainly want to consider for their yields and growth profiles right…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

Love Value Stocks? 2 That Are Screaming Buys in May 2024

Patience can pay off by investing in these two value stocks with nice dividends and the potential to turn around.

Read more »

healthcare pharma
Tech Stocks

What’s Going on With WELL Health Stock?

WELL stock (TSX:WELL) made strong moves once again, with record earnings and even higher guidance for 2024.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

2 Everlasting Canadian Stocks for Your RRSP

The Canadian National Railway (TSX:CNR) stock is worth owning for the long haul.

Read more »

money cash dividends
Stocks for Beginners

Is TD Stock the Best Dividend Stock for You?

Shares of TD stock (TSX:TD) plunged on the news of a money laundering probe. But could this mean it's a…

Read more »

exchange traded funds

New to Investing? Get Started With This Easy, Hands-Off Method

Vanguard S&P 500 Index ETF (CAD-hedged) (TSX:VSP) is a glorious first investment candidate for beginner investors.

Read more »