Bombardier (TSX: BBD.B) has had quite the year; in fact, it’s had quite the decade. The company went from ultra highs to ultra lows, falling below the dollar mark and was at risk of being taken off the TSX. However, the company also made some moves towards long-term growth — moves that Motley Fool investors should pay attention to.
So, with such changes coming this year, is Bombardier the best stock to buy on the TSX today?
Change is strange
Over the last year, Bombardier decided to cut ties with much of its original business — no more trains, no more subway lines, just a focus on its jet airplane business. The company chose the right time, as it latched on to the pandemic. Business people looking for a safe way to travel can take one of the company’s jets, which is far better than to risk contagion in a public airport.
Bombardier also announced the launch of its new Challenger 3500. This was followed by a purchase of 20 of these aircrafts for a price of $534 million. Furthermore, it’s since announced a global manufacturing centre to build future aircrafts at Toronto Pearson International Airport. The new aircrafts should be up and running by the second half of 2022, according to management.
Earnings improvement
But it all comes back to the numbers. During Bombardier’s last quarter on the TSX today, there were certainly signs of improvement. The company beat analyst estimates, with business aircraft revenue rising 17% year over year to $1.4 billion. In fact, its flight hours surpassed those of 2019.
Furthermore, it saw adjusted EBITDA reach $142 million, up 69% year over year, with $100 million in free cash flow. But the best news was it managed to bring down debt by $3 billion since the beginning of 2021.
“We are delivering consistently on what we set out to do, especially when it comes to deleveraging the balance sheet. Thanks to the hard work of our outstanding team, we cleared the debt maturity runway on plan,” said Éric Martel, president and CEO of Bombardier. “As a fantastic finale to the quarter and at a great moment in time for our industry, we launched our new Challenger 3500 jet last month. The extremely positive reception and strong first orders for the new aircraft are clear evidence that we were able to bring significant value to customers through measured and disciplined investments.”
Yet Bombardier is down on the TSX today
Analysts increased their target price for Bombardier after all this good news. It currently sits at an average target price of $2.33. In fact, analysts believe the stock is far less risky than it was. This comes down to its new jet program and debt refinancing. Taking away its costly aerospace business will still weigh down its debt for now. But the move to its jet program was stronger than analysts anticipated.
And yet, shares of Bombardier continue to drop as the stock market trades down. This comes from several reasons in the broader market, with the Omicron variant and supply chain issues the only things likely to affect Bombardier.
These short term issues are what make this stock a stellar long-term buy for Motley Fool investors. The company is well on the way to profitability once more, decreasing its debt more and more each quarter. The next quarter should see Bombardier rise back from the ashes.
Shares are up 209% year to date, with a potential upside of 47% to reach its target price. Meanwhile, it offers substantial value trading at 0.69 times earnings, and 0.50 times sales. With a cheap share price, solid growth, and a more stable business model, this has to be the best stock on the TSX today.
