Bombardier (TSX: BBD.B) stock has made its pandemic investors happy in the last three years, as the plane and train maker underwent Jedi training to become a Master. The company rose from a multi-year loss and a US$10 billion debt to a profit-making company with manageable debt and positive free cash flow. This remarkable turnaround was the brain of Éric Martel, who took to the helm in the spring of 2020. He started his new role with two main objectives, reduce debt, and focus on Bombardier’s profitable ventures.
If you’d invested $2,500 in Bombardier in 2020…
Those who invested in Bombardier during the pandemic (March 2020) are now sitting on good returns. If you had invested $2,500 in this stock when it traded below $1, you would have got more than 2,500 shares of Bombardier. That was a tough time, as the pandemic changed the world for airlines and made matters worse for plane makers.
Bombardier’s departing chief executive officer Alain Bellemare left with a generous $17.5 million severance pay while the company reported US$1.6 billion in losses. If you look at Bombardier’s history, it is a strong company that makes good planes. Its fate turned, as it got caught in the highly competitive U.S. market dominated by Boeing and Airbus.
Fun fact: Airbus A220 was formerly Bombardier CSeries aircraft, which Airbus acquired in an all-share deal.
2020: Survive then thrive
The pandemic was all about survival. With all planes grounded, they became a liability to the airlines. Many airlines retired their old planes. Bombardier used all the support it could get from the government to survive. It also used the record low interest rate of the pandemic to restructure debt.
2021: Time to offload
As pandemic skies showed a silver lining with the vaccine in place, Bombardier executed the strategic sale of its train-making business to Alstom and used most of the proceeds to repay the next three years of debt maturity. Martel sold many small business segments and made Bombardier a pure-play business jet maker. From here began its growth journey. Bombardier stock surged 253% between February and September 2021.
2022: Bombardier’s V-shaped recovery
But the last quarter of 2021 brought a steep market correction as hedge funds started to sell stocks over fears of accelerated interest rate hikes in 2022. Bombardier stock lost a 50% valuation by June 2022, and the stock once again struggled to stay above $1. The business jet maker didn’t want to be removed from the TSX Composite Index again (it was removed from Index in June 2020), as it would weaken institutional investor investment.
Fun fact: For stocks to remain listed on the TSX Composite Index, they should have a market capitalization of at least 0.04% of the index and sustain a share price of over $1.
Bombardier announced a 25:1 stock split and secured its position on the exchange. So if you own 2,500 shares, you will now own 100 shares of Bombardier. After the consolidation, the stock dipped and then recovered. This recovery was backed by fundamentals, as the company’s June 2022-quarter earnings surprised investors. Bombardier achieved its 2025 free cash flow (FCF) target of over US$500 million.
Bombardier’s growth story: 2023 and beyond
Bombardier still has a lot of fuel left to complete its turnaround journey. The next phase of the story is growth in profits. After growing revenue by 23% to US$6.9 billion between 2020 and 2022, Bombardier increased its 2025 revenue outlook to US$9 billion (from the previous US$7.5 billion).
The company expects revenue to be driven by strong demand for its Challenger 3500 jet and defence business. It expects to boost profits by focusing on aftermarket services and accelerating debt repayment.
What should you do?
Had you invested $2,500 in this stock in April 2020, you would have increased your money fivefold to $13,400 today. If you own the stock, hold it until 2025, as it continues on its turnaround path. And if you don’t, you can buy the stock at its current price of over $57. While your money may not grow 10-fold, it could double by 2025 and beyond.
