Bombardier (TSX:BBD.B) has taken investors on a roller-coaster ride in the last five years. Shares of the Canadian company fell from $128 in July 2018 to less than $8 in November 2020. Now, up over 600% in the last three years, Bombardier is valued at $5 billion by market cap. Let’s see if the TSX stock remains a good buy right now.
The bull case for Bombardier stock
Bombardier is engaged in the manufacturing and sales of business aircraft and aircraft structural components in North America, Europe, Asia, and other international markets. It provides new aircraft, specialized aircraft solutions, and pre-owned aircraft to corporations, charter and fractional ownership providers, private individuals, and governments.
Bombardier reported solid results in the third quarter (Q3) of 2023 as it grew sales by 28% to US$1.9 billion, driven by higher deliveries and strong momentum in the aftermarket business that generated US$414 million in sales.
Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 36% to US$285 million, indicating a margin of 15.4%, while free cash flow stood at US$80 million.
The company ended Q3 with US$1.2 billion in liquidity with a cash balance of US$1 billion and total balance sheet debt of US$6 billion.
Bombardier ended the September quarter with a backlog of US$14.7 billion, reflecting a healthy demand environment, given its forecast to report revenue of US$10.4 billion in 2023.
Further, Bombardier emphasized the industry continued to normalize amid an uncertain macro environment. For instance, pre-owned business jets available for sale, which is expressed as a percentage of the total in-service fleet, rose 6.3%, up from 3.8% in the year-ago period.
While pre-owned inventory has steadily risen in recent quarters, it is well below the 9.5% seen at the end of Q3 of 2019. While business jet utilization fell 7% year over year in the U.S., it was up 8% compared to the same period in 2019.
According to Bombardier, sustained aircraft activity worldwide and a healthy backlog for the industry should stabilize revenue in the near term. However, higher interest rates and rising operating costs could act as headwinds for Bombardier, impacting new order levels across the industry.
What is the target price for Bombardier stock?
Analysts tracking Bombardier stock expect sales to rise from $9.34 billion in 2022 to $11 billion in 2024. Its adjusted earnings per share is forecast to rise from $1 to $5.54 in this period. So, priced at 0.45 times forward sales and 10 times forward earnings, Bombardier stock is quite cheap.
Bombardier is well positioned to benefit from an improving macro environment, widening profit margins, improving cash flows, and lower balance sheet debt in the next few years, making it one of the top investment choices for investors with a high-risk appetite right now.
Bay Street has an average target price of $77 for Bombardier stock, indicating an upside potential of over 50% from current levels.
Given consensus price target estimates, Bombardier stock should easily outpace the broader markets. However, it will need to consistently outpace earnings estimates, which will be a key driver of the stock price.
