Is Bombardier (TSX:BBD.B) a Buy After Selling its CRJ Jets?

Bombardier, Inc. (TSX:BBD.B) stock has struggled over the past year, but with the company making a big move to help focus on its core businesses, it may have become a much more attractive investment.

| More on:
Plane on runway, aircraft

Image source: Getty Images.

Bombardier (TSX:BBD.B) announced earlier this week that the company would be selling its CRJ jet program to Mitsubishi Heavy Industries. The company will receive US$550 million, and Mitsubishi will take on $200 million in liabilities related to the jets.

It’s another big move for Bombardier, as a couple of years ago the company got rid of half of its CSeries jets for nothing.

Is this a good move for Bombardier?

Ultimately, this is going to let the company focus more on its core operations. In its most recent fiscal year end, the company’s commercial aircraft segment generated just $1.8 billion in revenue and was the smallest segment of its operations. Transportation continues to lead the way with $8.9 billion in revenues for all of 2018. Commercial aircraft was actually the only segment in 2018 that recorded a negative EBIT number of $755 million, with the transportation segment producing a near mirror image with a positive EBIT of $774 million.

For Bombardier to get rid of an underperforming part of its business while injecting the company with a lot of cash, it’s a move that makes a lot of sense to me. The company has been bleeding money, generating negative free cash flow in four of its last five periods. By taking away some of its losses, it’ll help to improve the company’s overall cash flow. Even though Bombardier has generated profits consistently over the past year, the company’s margins have been razor thin, with an average of just 2.5% of sales flowing through to its bottom line.

Will this help give the stock a boost?

Over the past year, Bombardier has lost more than half of its value, and it’s struggled in some cases to even stay above $2 a share. It’s a move that should get some more excitement around the stock again. Any time a company refocuses on its core business and looks to get out of unprofitable segments, a move like this is definitely a good decision to make. To put it into perspective, commercial aircraft made up just 11% of the company’s sales in 2018, and the company’s profits would have been 75% higher if not for the segment dragging it down over the course of the year.

From a sales point of view, it’s always disappointing to see a company cut out a piece of its top line. However, the big concerns around Bombardier stock have been the company’s lack of profitability and lots of cash burn. This sale addresses both of those issues, and the company is certainly in a better position with more cash on its books and fewer segments to operate.

Bottom line

Bombardier has a great opportunity to turn things around, and I wouldn’t be surprised if the company starts to rally on these results. Although it may still have a long way in convincing investors that it can consistently produce strong quarters, it’s definitely a step in the right direction.

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 David Jagielski has no position in any of the stocks mentioned.

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »