One of the largest TSX companies operating in the aviation industry, Bombardier (TSX:BBD.B) stock is valued at a market cap of $5.4 billion. While the TSX stock has more than tripled investor wealth in the last three years, it has trailed the broader markets by a wide margin in the last decade.
Since June 2003, Bombardier stock has lost over 50% in market value. So, an investment of $1,000 in this company 10 years back would be worth $4,740 today. Comparatively, the TSX index has surged 123% in this period after adjusting for dividends.
But historical returns shouldn’t matter much to future investors. Let’s see if Bombardier can deliver outsized gains to investors in 2023 and beyond.
What does Bombardier do?
Bombardier is a leading manufacturer of business jets. Armed with 5,000 aircraft in service, Bombardier owns and operates a global fleet while catering to multinational corporations and governments, as well as private individuals. These aircraft are also used in special-mission roles ranging from surveillance to medical evacuations and dignitary transport.
Additionally, the company provides aftermarket and support facilities, which include wholly owned service centres in the U.S., Asia-Pacific, and Europe.
In 2022, Bombardier increased sales by 14% to $6.9 billion while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) was up 45% at $930 million. It increased EBITDA margin by 300 basis points to 13.5% in 2022.
Due to improving profit margins and a strong order intake, Bombardier ended 2022 with free cash flow of $735 million, an increase of $635 million year over year. While interest rates have increased steadily in the last 15 months, Bombardier’s widening profits have allowed it to lower debt by $1.1 billion in 2022. Since December 2020, its total debt has declined by $4.1 billion.
At the end of Q1, Bombardier’s cash balance stood at $1.1 billion, while total debt was $6 billion. It also ended the quarter with an order backlog of $14.8 billion, indicating a steady demand profile.
What next for Bombardier stock and investors?
The company now expects to deliver at least 138 aircraft this year, generating $7.6 billion in sales and more than $1.1 billion in adjusted EBITDA. Analysts also expect adjusted earnings per share to increase to $4.21 in 2023 and $5.44 in 2024, up from $1 in 2022.
So, the TSX stock is priced at 14 times forward earnings. This valuation is quite cheap, given adjusted earnings are forecast to increase by 174% annually in the next five years.
Bombardier launched the Global 8000 jet in 2023, which will enter service in 2025 and be a key revenue driver for the company. The aircraft will be the fastest flying plane in business aviation with a max speed of Mach 0.94, or 94% of the speed of sound.
Bombardier stock is down 22% from all-time highs and trades at a discount of over 35% to consensus price target estimates.
While Bombardier continues to improve its financial profile, its debt-heavy balance sheet may act as a headwind, given elevated inflation levels, rising interest rates, and the threat of an upcoming recession.
