TD: End to its historically low valuationINVESTOR DAY PROVIDES MORE STIMULUS FOR HIGHER VALUATION
THE TD COWEN INSIGHT
Bombardier hosted an Investor Day on May 1. We believe that the information provided
once again provides support for the end to its historically low valuation relative to its own
history and A&D comps. Bombardier's success over the past four years can continue, and
we believe there are relatively low risk opportunities for shareholder value creation through
the end of the decade and beyond.
Impact: SLIGHTLY POSITIVE
During the investor day the company re-iterated 2025 financial targets, introduced
support for significant growth in less cyclical (defense, aftermarket) business opportunities
through 2030, disclosed NetJets as the customer for a Dec/23 Challenger 3500 order, and
announced that the order includes options for 232 additional aircraft with a list price value
of >$6 billion.
We have made minor revisions to our forecast assumptions, the net impact of which is
relatively immaterial, but biases our target up to C$105 from C$104. We forecast that
Bombardier will generate CAGR's in revenue, adjusted EBITDA and adjusted EPS of 7%, 16%
and 34%, respectively, from 2023 through 2025.
While we estimate that growth will slow beyond 2025, we believe that there are several
factors that should still drive sustainable share price upside. We estimate that leverage will
continue moving lower into investment grade range which will ultimately be a catalyst for
returning capital to shareholders through dividends or share buy-backs. We estimate that
less cyclical revenue sources will continue to increase as a proportion of total revenue. The
company presented a scenario in which aftermarket, defense and pre-owned aircraft sales
revenue reaches 50% of consolidated revenue by 2030. Although our current forecast takes
a more conservative approach, we believe this scenario is certainly possible. We believe
that the declining risk profile of Bombardier is still significantly underappreciated, and that
revenue diversification, balance sheet improvements, cyclical trends and capital allocation in
2025 and beyond will help remedy this misunderstanding in the equity market.
We view the strong share price response to the investor day as signaling that the stock
no longer needs an earnings upside surprise, positive changes to guidance or other shortterm catalysts to move higher. We view the share price response as indicating a market
appreciation for the longer-term opportunity in Bombardier, a dynamic that we believe will
lead to less volatility and a sustainably and appropriately higher valuation multiple