Bombardier, Inc.: Will 2017 Be Another Rewarding Year for Investors?

Bombardier, Inc. (TSX:BBD.B) has had a strong year. Will the momentum continue?

| More on:
The Motley Fool

Bombardier, Inc. (TSX:BBD.B) is up 55% year-to-date and has more than doubled off the February low.

Let’s take a look at Canada’s plane and train maker to see if the good times are set to continue in 2017.

Big rebound

At the beginning of 2016, it looked like Bombardier was headed for bankruptcy. The company hadn’t signed a new order for its CSeries jets since September 2014, and low fuel prices suggested demand might remain weak for the energy-efficient planes.

Without prospects of a significant revenue boost, the US$9 billion debt level began to really frighten investors, despite US$2.5 billion in funding commitments from Quebec and the province’s pension fund.

Then things began to turn around, and the stock has been flying high ever since.

What happened?

Air Canada and Delta Air Lines came to the rescue with major CSeries orders. This gave the program a credibility boost and scared short sellers out of the stock.

Bombardier delivered its first CSeries planes in the summer and recently announced another small order.

One thing to keep in mind is the fact that the Q2 earnings report showed that the company took a US$500 million charge due to significant discounts provided to get the Delta and Air Canada deals, so CSeries margins will be important to watch going forward.

If Bombardier can secure another large CSeries order in the first half of 2017 at a better price point, the stock could repeat its strong performance.

Risks

The company is definitely in better shape than it was at the beginning of the year, but risks still remain.

Bombardier continues to burn through significant cash flow and is struggling to meet delivery targets on both the CSeries planes and some of its rail contracts.

The company originally planned to deliver 15 CSeries jets in 2016. That number was cut in half due to difficulties at a supplier.

The rail group is taking serious heat for serial missteps on a Toronto streetcar order, and Metrolinx, the agency responsible for regional rail transport in Ontario, has started the process of cancelling a 2010 order for up to 182 Bombardier LRVs.

The production issues will eventually be sorted out, and Bombardier continues to win new Metrolinx contracts for other projects, so the transit agency’s bark could turn out to be worse than its bite.

Nonetheless, the delays might be having an impact on deals in other markets.

For example, Bombardier lost two rail contracts in the U.S. over the past two years. A state-owned Chinese company outbid Bombardier for the deals and agreed to assemble some of the trains in the United States. If the Chinese can deliver the trains on schedule, it could spell trouble for Bombardier in the U.S. market going forward.

Should you buy?

Bombardier is flying high at the moment, and more success in the CSeries group could boost the stock price next year, so there is a chance investors will do well in 2017.

At this point, however, the debt situation is still a concern, and most of the positive news appears priced in. I would like to see a strong CSeries order without the company having to take an “onerous” provision on the sale, before buying the stock.

As such, I’m more inclined to look elsewhere for opportunities today.

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 Andrew Walker has no position in any stocks mentioned.

More on Investing

Money growing in soil , Business success concept.
Dividend Stocks

3 TSX Stocks That Could Make You a Millionaire

These three TSX stocks each have outstanding potential while trading undervalued today, creating significant opportunities for investors.

Read more »

supplements vitamins pills
Investing

Got $1,000? Buy These 2 Stocks and Hold ‘Til Retirement

Jamieson Wellness (TSX:JWEL) and Aritzia (TSX:ATZ) are great bargain growth stocks with huge profits.

Read more »

Business man on stock market financial trade indicator background.
Stocks for Beginners

Got 3,000? 3 Simple TSX Stocks to Buy Right Now

Here are three top TSX stocks to buy in these uncertain markets that could compound your long-term returns.

Read more »

Senior couple at the lake having a picnic
Tech Stocks

3 TSX Stocks That Are Great Long-Term Picks

October is a ripe time to buy growth stocks for wealth creation. Use the market downturn to tap the recovery…

Read more »

edit U-turn
Investing

Rebound Rockets: 2 Beaten-Down Stocks You’ll Be Happy You Own in 2027

A stock market decline in 2022 presents buying opportunities on beaten-down Magna International (TSX:MG)(NYSE:MGA) and Shopify (TSX:SHOP)(NYSE:SHOP) stock. Here’s why.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks You Haven’t Bought Yet, But Should

I get it, these dividend stocks aren't doing so hot these days. But investors should buy now and think long…

Read more »

analyze data
Investing

What Are the Best Canadian Stocks to Buy Now?

As markets continue to sell off and investments trade at massive discounts, here are the best Canadian stocks to buy…

Read more »

warning or alert
Investing

BUY ALERT: 3 TSX Stocks to Buy for Dirt Cheap

Canadians on the hunt for opportunities in this bear market should target dirt-cheap TSX stocks like Cargojet Inc. (TSX:CJT).

Read more »