Bombardier (TSX:BBD.B) stock surged 22% in a month to a new post-pandemic high of over $111. The business jet maker keeps soaring higher and higher and is trading at a forward price-to-earnings ratio of 17 times. This latest surge comes after the stock appeared on the TSX30 List of the best-performing TSX stocks for the second straight year.
The latest rally has inflated its 14-day Relative Strength Index (RSI) to 71, indicating that the stock is overbought. The sentiment is still bullish around the jet maker because it is set to announce its third-quarter earnings on November 7. The second half is generally stronger for the company as aircraft deliveries gather momentum. But the question is if you should buy this stock at the current price.
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Three things to know before you buy this aerospace stock
Bombardier stock has been on a growth spree since 2021 when the new management turned around the company and repaid US$4.5 billion in debt. This turnaround story is nearing its end, and the company is returning to normal growth. It means that the crazy triple-digit growth will now normalize.
Bombardier expects stable annual aircraft deliveries
Bombardier makes and maintains business jets. Between 2021 and 2024, more than 80% of its revenue came from aircraft deliveries. The delivery count increased from 120 in 2021 to an expected 150 in 2024. However, in its investor day presentation, the company expects the aircraft deliveries to stabilize at 150 from 2025 onwards. It expects annual revenue to reach US$9 billion by 2025 from US$8 billion in 2023.
The revenue growth from aircraft deliveries will likely ease. However, Bombardier has other plans to boost revenue.
Bombardier diversifies revenue streams
The company has now changed its stance from just building business jets to designing, building, modifying, and maintaining aircraft. It is modifying its Challenger and Global aircraft for defence and expects to earn the next US$1 billion in revenue from here. It is also looking to modify the pre-owned jets and resell them at a better price.
Bombardier has already established its presence in aftermarket service and is reaching the goal of 50% market share ($2 billion) this year. It is in dialogue with India’s Adani Group over defence orders and a maintenance, repair, and overhaul (MRO) partnership.
The business jet maker expects 65% of its revenue to come from aircraft manufacturing, 22% from aftermarket service, and 13% from defence and pre-owned aircraft. The diverse revenue streams will help the company improve its profitability and generate an 18% adjusted EBITDA margin (earnings before interest, taxes, depreciation, and amortization).
Bombardier open to acquisitions beyond 2025
In the investor day presentation, Bombardier stated that it is open to acquisition opportunities that are accretive to earnings in the future (beyond 2025). The company began selling its businesses before 2021 to reduce its US$10 billion debt.
In the meantime, the company will continue to reduce its net debt-to-EBITDA ratio from 3.3 times to 2–2.5 times. Having burned its fingers in debt, the company wants to steer clear of it and make its future balance sheet stronger.
Should you buy the stock at the current price?
Bombardier has a well-planned roadmap, robust implementation, and strong management. The stock is a buy even at the current price, as the diversified revenue streams show that the company is growing efficiently while keeping its expenses and capital spending in check. Moreover, the management is also mulling share buybacks and dividends beyond 2025.
