Bombardier (TSX:BBD.B) stock has corrected 10% in the last quarter of 2024 as the overall stock market momentum turned bearish. The stock price fell below $100, creating an opportunity to buy the dip before the business jet maker releases its fourth-quarter earnings in early February. The fourth quarter is strategically important for the company as most of its business jet deliveries occur during the quarter. Its inventory cost will fall, and it can realize the revenue for the aircraft delivered.
Reasons to be bullish on Bombardier
For 2024, Bombardier is expected to deliver at least 61 aircraft to achieve its annual target of 150 deliveries. The count of 61 is equivalent to two-quarters of deliveries and could generate close to $3 billion in revenue. These numbers could send the stock up.
After February, there will be a run-up to Investor Day 2025, which is expected in April or May. Add any announcements about interest rate cuts to this. A decline in interest rates could improve liquidity in the stock market and drive momentum towards growth stocks. At the same time, looming fears of rising credit risks could make low-debt companies like Bombardier more attractive.
The positive market momentum and strong fundamentals make me bullish on the business jet maker.
What does 2025 have in store?
Bombardier has no debt maturing in 2025. Moreover, it has US$12 billion in tax attributes from its years of losses. These two things could keep its costs low in 2025. Moreover, this year, the company will bring into service its flagship Global 8000 large cabin aircraft, which could help the company meet its 150-delivery target. Bombardier’s US$14.7 billion order book brings visibility around the revenue.
However, the highlight of 2025 would be improving profitability by increasing the mix of businesses with higher returns. They include pre-owned and defence aircraft and aftermarket services. Moreover, the reduced debt will free up more cash to reinvest in the business. At the end of 2023, it maintained US$1.8 billion liquidity as a prerequisite for its high debt. Its liquidity requirement could fall to US$1 billion-US$1.5 billion, giving it more flexibility to invest in return-generating activities.
Why is Bombardier stock a buy in January?
The outlook is bright for Bombardier. It has several growth opportunities and a management with robust execution capabilities. The company is now focusing on improving profits and considering giving dividends beyond 2025. The stock is fairly valued at a price-to-earnings (P/E) ratio of 15.3, which is higher than its eight times P/E ratio of December 2023. However, looking at the future earnings growth, the stock seems undervalued.
Buying this stock below $100 and holding it for the next three years could generate strong double-digit growth. You could consider investing $500 to $1,000 in Bombardier through your Tax-Free Savings Account.
