Bombardier (TSX:BBD.B) has crushed the broader market returns in the last four years, returning more than 800% to shareholders since September 2020. Valued at a market cap of $9.44 billion, Bombardier manufactures and sells business aircraft in Europe, North America, and other international markets.
It provides new aircraft, specialized aircraft solutions, and pre-owned aircraft. The company also offers aftermarket services, including parts and service centres, serving multinational corporations, charter and fractional ownership providers, private individuals, and governments.
In the last four years, Bombardier has exited multiple business segments, strengthened its balance sheet, and significantly improved profit margins. Let’s see if it can continue to drive earnings growth in 2025 and beyond.
A strong performance in Q2
In the second quarter (Q2) of 2024, Bombardier reported revenue of $2.2 billion, an increase of 32% year over year. Comparatively, its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 22% to $335 million, indicating a margin of 15.2%.
The company posted double-digit growth across key metrics, including deliveries, revenue, and profitability, while affirming its full-year guidance. In the June quarter, aircraft deliveries grew by 34% year over year to 39 units, and Services sales rose 18% to $507 million.
Bombardier ended Q2 with adjusted earnings per share of $1.04 and a backlog of $14.9 billion. With more than $1.3 billion in total liquidity and $1 billion in balance sheet cash, Bombardier has the financial flexibility to invest in growth projects and lower long-term debt.
While Bombardier’s adjusted net income rose by almost 50% year over year, it reported an operating cash outflow of $31 million and a free cash outflow of $68 million, which suggests it invested $37 million in capital expenditures.
The aircraft maker has staged an impressive turnaround between 2020 and 2023:
- Aircraft deliveries increased from 114 to 138
- Adjusted EBITDA rose from $197 million to $1.23 billion
- Adjusted EBITDA margin expanded from 3.5% to 15.3%
- Net leverage improved from 41.5 times to 3.3 times
- Backlog has risen from $10.7 billion to $14.2 billion
Is Bombardier stock undervalued?
Bombardier expects its sales to touch $9 billion in 2025, with an adjusted EBITDA of $1.625 billion, indicating an 18% margin. It also expects to end 2025 with $900 million in free cash flow and a net leverage ratio of two times to 2.5 times.
Moreover, analysts forecast the company to expand its adjusted earnings from $5.39 per share in 2023 to $9.11 per share in 2025. Priced at 10 times forward free cash flow and 10 times forward earnings, Bombardier stock is quite cheap.
Bombardier has an established and compelling product lineup in key business segments. It is also capturing a greater portion of the pre-owned market with the potential to grow through 2030. With a large and growing installed-base fleet, Bombardier is well-positioned to benefit from higher aftermarket sales. In fact, it expects aftermarket, defence, and pre-owned revenue to increase from 31% of total sales in 2023 to 50% in 2030.
Bay Street remains bullish on Bombardier stock and expects it to gain roughly 20% in the next 12 months.
