Bombardier Rose 15.9% in 90 Days: Here’s Why It’s Still Undervalued

Bombardier stock surged almost 16% in the last 90 days and is still undervalued for a long-term investor. Here’s why.

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Bombardier (TSX:BBD.B) stock surged almost 16% in the last 90 days to above $60. Most of the rally came after 2023 earnings. And if you look at the stock from a 10-year perspective, it is still undervalued. The business jet maker started a turnaround in 2021 and managed to stabilize its business in 2023. The company has shifted from multi-year losses to profits and positive free cash flow. It self-funded its new aircraft manufacturing center at the Toronto Pearson Airport. The stock’s 16% rally in 90 days reflects this turnaround. 

Bombardier’s short-term growth potential 

After a successful turnaround, Bombardier has now entered the next phase of sustainable growth and improving profitability. It expects revenue to grow by 5% to US$8 billion in 2024, slowing its double-digit revenue growth during the turnaround phase. 

Leading the growth is a strong order book of $14.2 billion. The company expects to deliver 150 to 155 aircraft this year, 12 to 17 more than last year, despite economic uncertainty. It expects moderate growth in profitability amid supply chain constraints. It is also on track to bring its flagship Global 8000 airline into service in 2025. The aircraft’s predecessor, Global 7500, has just sold 150 aircraft. 

Bombardier’s long-term growth potential 

The business jet maker is optimistic about its long-term growth. It is diversifying its revenue streams to generate regular cash flow. In the business jet space, it is broadening its customer base to include the Defense sector. In the after-service segment, it is targeting original equipment manufacturers (OEMs) for pre-owned aircraft. 

Bombardier believes that charter planes and the evolution in financing could make business jets accessible to a broader customer base, especially in emerging markets. 

Bombardier is researching EcoJet, which uses sustainable aviation fuel. Such a business jet could be revolutionary and bring in good bucks in the long term. This roadmap and the ongoing work show the disciplined business plan of Bombardier’s management and where they want to take the company. 

Addressing the elephant in the room 

While the growth prospects look good, it is important to address the elephant in the room, the debt. Bombardier has set an example of deleveraging the balance sheet. From a debt of over US$10 billion in 2020 to US$5.6 billion in 2023, Bombardier has repaid US$4.5 billion of its debt. It is sticking to its plan of repaying two years of debt in advance, giving it enough flexibility to invest its cash flow in the business. 

The reduced debt improved Bombardier’s credit rating. So now, it is using that to refinance its US$2.8 billion debt maturing in 2026–2027, spreading it over the long term. It plans to refinance its 2026–27 debt by spreading it between 2031 and 2033 when it has no debt maturities. It will also use its free cash flow to repay debt. 

Its target is to reduce net debt to 2 to 2.5x its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This debt repayment will reduce its interest expense and help it improve efficiency. 

What to expect from Bombardier stock? 

Bombardier is a growth stock that can give you capital appreciation in the long term. The stock is trading at 10.9 times its forward earnings per share. It shows that the market has priced in the short-term growth. It is a stock to buy at the dip. However, timing the market could be difficult. 

You could use the dollar-cost averaging strategy to reduce your average cost per share. You can accumulate shares of Bombardier with a small investment of $100 or $200 every month. In the long term, your investment could give better returns than the TSX Composite Index. Diversify your portfolio across different sectors with a good blend of growth and dividend stocks. 

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 Puja Tayal 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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