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At Less Than $2 Per Share, Is Bombardier Inc. a Value Play?

Bombardier Inc. (TSX:BBD.B), one of the world’s leading manufacturers of planes and trains, announced better-than-expected second-quarter earnings results before the market opened on July 30, but its stock has responded by falling over 17% in the trading sessions since. The stock now sits more than 63% below its 52-week high of $4.43 reached back in December 2014, so let’s take a closer look at the results and its current valuations to determine if we should consider initiating long-term positions today, or if we should wait for an even better entry point in the weeks ahead.

The better-than-expected performance

Here’s a summary of Bombardier’s second-quarter earnings results compared with what analysts had expected and its results in the same period a year ago. All figures are in U.S. dollars.

Metric Reported Expected Year-Ago
Adjusted Earnings Per Share $0.06 $0.05 $0.10
Revenue $4.62 billion $4.61 billion $4.89 billion

Source: Financial Times

Bombardier’s adjusted earnings per share decreased 40% and its revenue decreased 5.5% compared with the second quarter of fiscal 2014. The company’s steep decline in earnings per share can be attributed to its adjusted net income decreasing 24.5% to $145 million, while its slight decline in revenue can be attributed entirely to the negative impact of currency fluctuations. On a constant-currency basis, Bombardier’s revenues increased approximately 2%.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Revenues decreased 12.1% to $2.09 billion in its transportation segment
  2. Revenues increased 11.8% to $1.82 billion in its business aircraft segment
  3. Revenues decreased 20.7% to $598 million in its commercial aircraft segment
  4. Revenues decreased 2.3% to $472 million in its aerostructures & engineering services segment
  5. Adjusted earnings before interest, taxes, depreciation, and amortization decreased 8.6% to $329 million
  6. Free cash flow usage of $808 million, compared to a usage of $424 million in the year-ago period
  7. Backlog decreased 6.2% to $64.8 billion
  8. Available short-term capital resources increased 14.7% to $4.41 billion

Should you buy Bombardier today?

It was a solid quarter overall for Bombardier, and the results surpassed analysts’ expectations, so I do not think the post-earnings drop in its stock was warranted. With this being said, I think the drop represents a great long-term buying opportunity, especially because the stock now trades at very low valuations, including a mere 8.4 times fiscal 2015’s estimated earnings per share of $0.19, which is inexpensive compared with its five-year average price-to-earnings multiple of 11.5.

With all of the information provided above in mind, I think Bombardier represents one of the top value plays in the market today. Foolish investors should strongly consider beginning to scale in to long-term positions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned.

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