Could Bombardier, Inc. Be Worth Your Consideration?

Bombardier, Inc. (TSX:BBD.B) is working on great projects, but its delays continue to hurt the company, so I’m avoiding it.

| More on:
The Motley Fool

Since reaching a high of $2.75 per share, Bombardier, Inc. (TSX:BBD.B) has dropped by nearly 25%. Investors now have to consider if this is an appropriate price to start acquiring shares. And, if it is a good price, is the company worth consideration?

For context, Bombardier used to be an amazing investment. Its rail division was second to none, and it was Canada’s crown jewel of manufacturing companies. Unfortunately, the CSeries project ran into multi-year delays and was more than $2 billion over budget, putting the company in seriously dire straits.

But this was Bombardier’s first attempt at making a larger class of aircraft. It believed, due to the aircraft design, that customers would buy the plane because it was efficient. In sales material, Bombardier wrote, “the result is two aircraft [CS100 and CS300] that deliver a 15% cash operating cost advantage and a 20% fuel burn advantage.” For airlines that want to boost margins, using the CSeries makes sense.

And airlines are realizing this.

Delta Air Lines Inc. ordered 75 CSeries planes, realizing that it could knock out regional airlines in the United States by offering a “widebody feel on a narrowbody,” as the CEO of Delta said. Bombardier sold these planes to Delta for US$5.6 billion, so it’s unlikely that there is much profit for Bombardier in the planes, but it was an emotional win.

Air Canada supported its fellow Canadian company and finalized a firm order for 45 CS300 with the option to buy an additional 30. While the price hasn’t been disclosed, it’s likely that this was also a deal of show rather than true profit.

And finally, Swiss International Air Lines, Bombardier’s launch partner, announced that it was upgrading from the CS100 to the CS300.

So, Bombardier received a lot of exciting news, but there remain uncertainties about the company. Primarily, its rail division is following in the plane division’s footsteps by being late with orders.

Bombardier has a $770 million contract with Metrolinx for a variety of projects; the biggest is the Eglinton Crosstown line that will open in 2021. It needed a test vehicle back in 2014, but Bombardier couldn’t deliver, and only now is the test vehicle ready. Metrolinx is looking for new vendors because the test vehicle doesn’t function correctly.

Another major problem for Bombardier is with the city of Toronto, which chose Bombardier to replace the city’s streetcars. All told, it was supposed to deliver 200 streetcars by 2019 with the first 100 by this month. At the end of 2016, it had delivered 30. Bombardier expects to deliver another 40 by the end of 2017. This has forced Toronto to use its older cars, which has cost the city more money.

Bombardier is an exciting company that is looking to make itself great with the CSeries. Unfortunately, it is sitting on contracts in the rail division that it risks losing because it can’t deliver on time. Management needs to get these projects moving or the company will experience even more pain. I remain on the side when it comes to Bombardier.

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 Jacob Donnelly has no position in any stocks mentioned.

More on Investing

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »