What’s Next for Bombardier Stock After Doubling in the Last 3 Months?

Bombardier stock: How the jet maker is turning around in 2023.

| More on:
Aircraft wing plane

Image source: Getty Images

Shares of private jet maker Bombardier (TSX:BBD.B) have been flying high since last year, even when the markets were weak. While the company seems to be turning around, its recent financial growth and improving balance sheet have certainly boosted investor sentiment. Bombardier stock has jumped 40% in the last 12 months, notably beating broader markets. It underwent a reverse stock split of 25:1 in July 2022.

What’s behind Bombardier’s surge?

A $6 billion Bombardier is now a pure-play private jet-making company after selling a few key verticals in the last few years. Bankruptcy once seemed unavoidable for it not long ago due to its huge debt pile. However, strong operational performance and changed strategic direction seem to have brought it back to a growth track.

Bombardier generates three-fourths of its total revenues from jet manufacturing, while the rest comes from the aftermarket segment.

The year 2022 brought in handsome growth for Bombardier. In its preliminary fourth quarter of 2022 results, released on January 17, it reported total revenues of US$6.9 billion. That represents a decent 13% increase year over year. It also exceeded the guidance declared by the management earlier in 2022.

Last year, it delivered 123 aircraft, beating its earlier estimate of 120. Apart from revenues, the margin profile also improved from 15% to 19% for the nine months that ended September 30, 2022. Margins expanded due to high-margin products and the successful execution of cost-reduction strategies. How its margins take shape amid adamant inflation this year will also have to be seen.

For the year 2022, it expects free cash flows of US$735 million. Despite these positives, Bombardier remains a net-loss-making company on an annual basis. The company will release its fourth-quarter (Q4) 2022 earnings on February 9, 2023.

Is Bombardier really turning around?

Deleveraging efforts have made Bombardier’s balance sheet notably stronger of late. At the end of Q3 2022, it had net debt of $5.18 billion, which is down from over $8.5 billion at the end of 2020. Investors might expect its debt repayments to continue with potential free cash flow growth.  

BBD.B stock is currently trading one times its sales and offers a free cash flow yield of 4%. It is trading at a forward price-to-earnings multiple of 39, based on analysts’ estimates. The stock seems to have gone too far, too soon. A hint of slowing sectoral growth could push the stock notably lower in the short to medium term.

The business jet market has been flourishing since mid-2020, as passenger airlines were grounded amid curbs. However, a high correlation with business cycles makes Bombardier a risky bet. Upcoming recession fears and high competition in the sector could hinder its growth.

The Foolish takeaway

The changed direction to business jet-making looks to be working well for Bombardier. Despite its losses, improving margin profile and strengthening its balance sheet could make its turnaround a compelling growth story. Further deleveraging will likely lower its interest expenses, positively impacting its bottom line.      

Improving financials seem already priced in the stock, justifying Bombardier’s rally since last year. It will be important to watch how its quarterly earnings growth plays out if the macroeconomic picture deteriorates in 2023.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned.

More on Investing

Prospects for TD Bank stock
Bank Stocks

TD Bank in Hot Water: An ‘Exceptional’ Opportunity

Is TD Bank stock a buy after its money-laundering regulatory problems?

Read more »

investment research
Dividend Stocks

2 TSX Stocks to Buy in 2024 and Hold for the Next 10 Years

Are you looking for some great TSX stocks to buy in 2024? The market is full of options, but these…

Read more »

Dividend Stocks

Pensioners: 2 Stocks That Cut You a Cheque Each Month

Monthly pay dividend stocks like First National Financial (TSX:FN) cut you a cheque each month.

Read more »

money cash dividends
Dividend Stocks

Want Decades of Passive Income? 2 Energy Stocks to Buy Now and Hold Forever

Are you wondering what TSX energy stocks could pay and grow their dividends for decades ahead? Here are two for…

Read more »

The sun sets behind a power source
Dividend Stocks

2 No-Brainer Utilities Stocks to Buy Right Now for Less Than $200

These two utilities stocks can be some of the best picks for investors if you want to shell out some…

Read more »

grow dividends
Energy Stocks

Growth Spurt: 2 TSX Stocks Set to Skyrocket

Two growth stocks in expanding, niche markets are set to skyrocket further in 2024 and beyond.

Read more »

Nuclear power station cooling tower
Energy Stocks

Why Shares of Cameco Are Powering Higher

Cameco (TSX:CCO) shares have surged more than 400% in the last five years alone, with more growth on the way.

Read more »

A bull outlined against a field
Stocks for Beginners

Bull Market Buys: 2 TSX Stocks to Own for the Long Run

Are you looking for stocks that could see a bull run for decades ahead? Here are two top TSX stocks…

Read more »