Why Next Week Is Crucial for Bombardier Inc.

Mark the date in your calendar: February 12. That’s a crucial day for Bombardier Inc. (TSX:BBD.B) as the company continues to lose investor confidence.

| More on:
The Motley Fool

It’s been a tough month for Bombardier Inc. (TSX:BBD.B). On January 16, the company’s shares fell about 38% in less than two weeks and since then, it has been in the news for all the wrong reasons.

Less than a month ago, Bombardier announced it would be pausing its business jet program – the LearJet 85. That, along with the fact that the company lowered its 2014 guidance, pulled the stock to its lowest level in over a decade.

Bombardier not only revised its 2014 guidance, but also announced a pre-tax write-off of $1.4 billion for the fourth quarter due to the Learjet 85 program. That caused investors and analysts to ring alarm bells as they continue to be deeply concerned about the company’s liquidity. Of course, CEO Pierre Beaudoin, reassured investors that the company has enough liquidity to develop its current aircraft programs, including the CSeries.

I’m not yet fully convinced. Bombardier has repeatedly disappointed over the past year on many fronts. Its CSeries is yet to take off (excuse the pun) after more than its share of delays, the company has not met its earnings guidance, and moreover, it continues to lower its forecasts. Its short-term capital resources stood at about $3.8 billion at the end of 2014. That includes cash of roughly $2.4 billion.

As per Bombardier’s new guidance, the company expects to end the year with a minimum $3 billion in liquidity (including $2 billion in cash). Take into account the $1.4 billion charge due to the Learjet 85 project, and the company’s liquidity position looks rather concerning.

It’s no surprise that investors are quickly losing patience with this company. For now, there’s only once thing that reinforce investors confidence: consistent delivery.

Bombardier needs to start delivering on its promises and step up its game. It needs to get the CSeries off the ground and fix its balance sheet and cash flow levels.

D-Day for Bombardier?

Next week, February 12, will be key for the company as Bombardier is scheduled to report its earnings for the quarter. A lot of focus will be on its cash flow levels and more importantly, its guidance for the future.

In order to win back investors, I think it also needs to set a reasonable guidance for the future. And then, of course, deliver on that forecast.

I would wait for all of the above to happen first before I consider investing in the stock again. It’s going to take a lot for Bombardier to regain the trust of its shareholders and potential investors. If the company is very careful, it just might be able to weather this storm.

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 Sandra Mergulhão has no position in any stocks mentioned.

More on Investing

edit Jars of marijuana
Cannabis Stocks

Is Tilray Stock a Buy in the New Bullish Market?

Canadian cannabis producer Tilray has underperformed the broader markets in the last five years due to its weak fundamentals.

Read more »

Woman has an idea

3 No-Brainer Stocks to Buy With $200 Right Now

These three stocks are no-brainer buys, given their solid underlying businesses and healthy growth prospects.

Read more »


2 Stocks I’m Loading Up on in 2024

Alimentation Couche-Tard (TSX:ATD) and another stock that are getting too cheap after their latest corrections.

Read more »

grow money, wealth build
Dividend Stocks

1 Top Dividend Stock That Can Handle Any Kind of Market (Even Corrections)

While most dividend aristocrats can maintain their payouts during weak markets, very few can maintain a healthy valuation or bounce…

Read more »

Red siren flashing
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

Three established dividend-payers from different sectors are compelling investment opportunities for income-focused investors.

Read more »

online shopping
Tech Stocks

1 Hidden Catalyst That Could Ignite Shopify Stock

Here's why Shopify (TSX:SHOP) ought to remain a top growth stock investors continue to focus on for the long haul.

Read more »

Oil pumps against sunset
Energy Stocks

Is it Too Late to Buy Enbridge Stock?

Besides its juicy and sustainable dividends, Enbridge’s improving long-term growth prospects make it a reliable stock to hold for the…

Read more »

Man considering whether to sell or buy
Tech Stocks

WELL Stock: Buy, Sell, or Hold?

WELL stock has a lot of upside as the company is likely to continue to grow, posting positive earnings in…

Read more »