Bombardier Stock: Buy, Sell, or Hold?

Bombardier stock has surged 340% in the last three years. Can the TSX stock continue to outpace the broader markets?

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One of the hottest TSX stocks in recent years is Bombardier (TSX:BBD.B), which has surged 70% year to date and is up close to 350% since October 2020. Valued at a market cap of $4.7 billion, Bombardier stock is still down 93% from all-time highs and has burnt massive wealth for long-term shareholders.

But past returns don’t matter much to current and future investors. So, let’s see if it makes sense to hold Bombardier stock right now.

Is Bombardier stock a good buy right now?

Bombardier is engaged in the manufacture and sale of business aircraft and aircraft structural components in North America, Europe, Asia, and other international markets. It provides new aircraft and specialized aircraft solutions in addition to aftermarket services. The company serves corporates, individuals, charter and fractional ownership providers, and governments.

In the second quarter (Q2) of 2023, Bombardier reported revenue of $1.7 billion. The manufacturing business accounted for 74% of sales, while aftermarket services sales were 26%.

While sales were up less than 10% year over year, Bombardier increased adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) by 16.4% to $275 million.

Bombardier attributed higher manufacturing sales to elevated selling prices of medium and large aircraft, which showcases its pricing power. Its Services sales were up $69 million year over year due to higher volume and robust deployment of the expansion strategy.

Pre-owned business jets available for sale as a percentage of the total in-service fleet surged to 5.7%, up from 3.4% in the year-ago period. However, pre-owned inventory is well below the 9.2% in Q2 of 2019.

Moreover, a sluggish macro environment reduced business jet utilization by 7% in the U.S. and 6% in Europe in the first six months of 2023. But when compared to the same period in 2019, utilization rates are higher by 8% in the U.S. and 3% in Europe.

What is the target price for Bombardier stock?

Bombardier emphasized that while market sentiment is uncertain, the business aviation industry remains stable due to a strong and healthy backlog of this industry and sustained aircraft activity, which should result in stable revenue.

However, interest rate hikes continue to weigh heavily on this capital-intensive sector and could impact order levels in the near term.

Bombardier has a total debt of $6 billion on its balance sheet and less than $900 million in cash. So, the company will have to generate consistent cash flows to make interest payments, which totaled $539 million in the last 12 months.

Bombardier ended Q2 of 2023 with an order backlog of $14.9 billion and is forecast to increase sales by 14% to $10.65 billion in 2023. The top line is also forecast to rise by 6.6% to $11.35 billion in 2024. Comparatively, its adjusted earnings are expected to expand from $1 per share in 2022 to $6 per share in 2024.

Priced at eight times forward earnings, BBD stock is quite cheap, given its impressive earnings growth forecasts. Due to its compelling valuation, analysts remain bullish on BBD stock. Out of the 20 analysts covering BBD, 12 recommend a “buy,” seven recommend a “hold,” and one recommends a “sell.” The average target price for BBD stock is $80, which is 60% above current prices.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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