was there ever a doubt?Aerospace
Bombardier Set to Jet in Coming Year
By Bruce Campbell - Contributing Columnist
Wednesday, February 7
Bombardier has been announcing a spate of large contracts lately.
TORONTO, ONT - Bombardier [T.BBD.B] stock could be flying high over the next 12 to 18 months. The company will benefit from several catalysts that could make the market sit up and take notice.
Based in Montreal, Bombardier is an aerospace, transportation and recreational products company, as well as one of Canada's great international success stories. It has been announcing a spate of large contracts lately. This, along with three other major catalysts will propel the stock to a much higher level by this time next year.
Earnings Growth
Bombardier has been showing continuing 30% earnings growth for the last several years. Quarter-over-quarter improvements in earnings and bottom-line growth in the high 20s and low 30s is positive for the company. The price/earnings (PE) multiple is the only negative statistic with regard to the stock. It currently trades at 25 times this year's earnings. As growth is confirmed, the multiple will likely expand to meet the growth rate. A 30 times PE is not out of the question.
Contracts
Additional contracts should continue to be announced in both the aerospace and transportation areas. There have been three major announcements in the transportation division in the past two weeks alone. A $625 million contract for 350 rapid transit cars with the New York City Transit Authority is the largest. Deutsche Bahn exercised options for 26 Diesel units and Minneapolis ordered 18 light-rail vehicles. The division has announced $815 million of orders year to date, and its backlog is now approaching $9 billion.
Further announcements are expected later this year, including contracts with the London Underground and the Paris subway -- both of which Bombardier has a good chance of winning. On the aerospace side, SkyWest [SKYW] announced a $2 billion order this month, Air Wisconsin's order for $2.3 billion has been finalized, and orders from Northwest Airlines [NWB] and China are expected shortly.
Acquisitions
Bombardier is always on the lookout for acquisitions. The acquisition of Adtranz, the large European transportation company, will likely be finalized in the next couple of months. This transaction will be challenging to integrate, but will provide a whole host of new growth opportunities for Bombardier.
Sector Direction
There has been a perception that the commercial aviation sector has peaked. But Boeing's pronouncements of higher production next year and the likelihood of renewed economic growth in North America in the second half of 2001 should set a more positive tone for the sector.
There are no direct Canadian companies that can be compared to Bombardier in size and scope, but one small cap does stand out.
Magellan Aerospace [T.MAL]
This is a small-cap aerospace company that is very cheap and interesting on its own merits. It trades at less than 10 times earnings with growth in the mid-teens.
Bombardier is very cheap by comparison to this or any other large, international company. The downside is limited because the stock is cheap on a fundamental basis, trading at a PE of less than its growth rate. This is not always the case for large, blue chip growth companies. The stock should go up if any one of the above catalysts takes place. But there is a strong probability all four of them will happen to some extent. If this does happen, fasten your seatbelt because this stock will be ready for take-off.
Bruce Campbell is an Oakville, Ontario-based portfolio manager with more than 20 years of experience in managing stock portfolios for various pension fund, institutional and individual investors.
© 2001 StockHouse Media Corp.
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