Shares of Bombardier Inc. (TSX:BBD.B) are in a swan dive, and investors want to know when the stock will finally bottom out.
Let’s take a look at the current situation to see if there is any relief on the horizon.
At the time of this writing, Bombardier’s stock is down to $1.20 per share. That’s a 68% drop over the past 12 months and a 65% plunge over the past 10 years.
Analysts are lowering their price forecasts because the company is burning through cash at supersonic speed, and most pundits believe Bombardier will need more money to get its troubled CSeries program off the runway.
Konark Gupta, an analyst at Macquarie, recently cut his 12-month target on Bombardier from $1.75 per share to just $1.00. At that time, the stock was still trading around $1.60 and the call looked a bit harsh. That’s no longer the case.
Bombardier has to get its CSeries jets certified and delivered to customers if it has any hope of getting through the next two years without filing for bankruptcy.
Developing a new jet is extremely expensive and airlines only pay for planes when they take delivery. If everything goes according to plan, Bombardier can carry the costs through the process. Unfortunately, the CSeries program is now two years behind schedule and more than $2 billion over budget. Bombardier recently said it is on track to have the CSeries begin commercial service in the first half of 2016, but the market is skeptical.
Another concern is the lack of sales. Bombardier hasn’t received a new CSeries order for almost a year. The company is still short of its sales target of 300 planes, and a new report suggests as many as 100 of the scheduled deliveries for the next three years might not go through.
Bombardier plans to sell part of its transportation division in an IPO. Analysts expect the spin-off to raise as much as US$1-1.5 billion. The company spent more than US$1.5 billion in the first six months of 2015 and finished Q2 with cash on hand of just US$3.1 billion.
Based on the burn rate, Bombardier will need more money before 2017 and it will have to pay dearly to get it.
Earlier this year, the company managed to raise $1.1 billion in an equity issue by selling stock at $2.21 per share. The next round will be much more dilutive to shareholders.
Bombardier finished Q2 with US$8.9 billion in long-term debt. Moody’s just lowered the company’s debt rating, so any attempt to raise more cash will be expensive and there isn’t a guarantee that anyone will be willing to buy the debt given the current situation.
Is the bottom in sight?
Bombardier has to get its CSeries certified and into commercial service as fast as possible. If it can do this by the end of the first quarter next year, the market might change its tune and the stock could actually rally off the lows.
Right now, the name is still too risky and further bad news could send the shares below a buck. At this point, I would avoid Bombardier.
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Fool contributor Andrew Walker has no position in any stocks mentioned.