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Bombardier Inc.: How Huge Changes Could Make This Stock Soar

At this point, Bombardier Inc. (TSX:BBD.B) shares are less popular than ants at a picnic.

The story just keeps getting more depressing. After several delays in its much-anticipated CSeries line of business jets, the company seems destined to delay deliveries of the new planes to customers until 2016. Costs of the program have ballooned out of control, with more than $4 billion already spent, and an estimated $1.1 billion left to go. Customer orders have slowed to a trickle, even though competing single-aisle aircraft are selling well. Basically, customers are playing the waiting game.

In January, while announcing dismal results in the fourth quarter, management also hinted that the $3 billion in cash on the company’s balance sheet may not be enough. The company issued $2.5 billion in additional debt, bringing the total indebtedness of the company to more than $10 billion. That’s a huge number for a company with a market cap of just $4.5 billion.

While things look pretty dismal for Bombardier, I think the stock represents an interesting opportunity. Shares are so depressed that any piece of good news is likely to be very positive, and a big piece of good news could send shares soaring. Here are some potential changes investors should watch out for.

Selling off a division

The CSeries gets all the headlines, but behind the scenes Bombardier has some other interesting airplane assets.

Bombardier is a leader in the private jet market. Its Learjet division is so troubled that the company announced in January that it was “pausing” production at its plant in Kansas, cutting some 1,000 jobs in the process. However, that part of the business could still fetch $750 million in a sale, at least according to one analyst.

There’s also potential for Bombardier to sell off its Challenger and Global private plane divisions, which make planes a little bigger than the Learjets. There’s more demand for both those planes, which could lead to an even bigger infusion of cash.

Spinning off CSeries altogether

This is probably my favourite suggestion. If it wasn’t for the CSeries, I think Bombardier would be doing relatively well. So, why not spin off the division entirely, and allow the market to speculate on its future without bringing down the good parts of the company?

Nobody talks about Bombardier’s train division because it’s a steady performer. It does well bidding on North American contracts because having a supplier close by is important for the people buying locomotives, rail cars, and subways. The whole company right now trades at just over eight times earnings. Do you think a separate Bombardier train company would be that cheap? I doubt it. But that half of the company is getting punished by the market because of the sins of the CSeries.

Selling part of the train business

According to a report by Bloomberg, one of Bombardier’s European competitors is a good fit to buy part of the company’s train division. But is it ready to sell?

Competing French train maker Alstrom SA just sold its energy business, netting US$13 billion in the process. That gives it more than enough capital to take a sizable position in Bombardier’s transportation business. Although it’s unlikely the company’s new CEO would ever sell part of the crown jewels, just about every analyst agrees that Bombardier desperately needs to cut its debt. I see this as the least likely scenario.

Now that the company is flush with newly issued debt financing, analysts figure the balance sheet looks good until 2016. But as 2015 goes along, don’t be surprised if new CEO Alain Bellemare starts making some major changes to start transforming Bombardier into a more focused company. It has to start strengthening the balance sheet and stop kicking the debt can down the road. And since the stock is so cheap, these changes are likely to pay off for shareholders, and maybe in a big way.

Another sweet turnaround story!

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

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