Nat. bank : target at 65$ (from61$)Q4 2022 preview
Solid visibility on 2023
At the end of Q3 Bombardier’s backlog was $15.0 billion and at the current aircraft delivery rate, we estimate that the backlog equates to more than two years of production. Q4 jet deliveries look to have fallen short of our expectations, but we are still confident Bombardier can deliver 15-20% more jets in 2023, and we believe there is good visibility on this increase. Higher deliveries should drive increased revenue and margins, which will be further supported by the full-year impact from the company’s cost reduction initiatives.
Markets softening a bit, but still healthy
We expect new jet order activity will slow in 2023 relative to what was a very strong 2022, but overall, the business jet market remains quite healthy. Recent data from WINGX showed that December was the second most active on record for business jet flying activity, with flights down 2% y/y, but up 15% versus 2019. Used jet inventory for sale also remains low.
Deleveraging to continue
Bombardier’s FCF in the first nine months was $566 million, so the company should handily exceed its full year 2022 target for $515+ million. In Q4, the company paid down another $200 million in debt and in Q1/23 another $400 million in restricted cash will be freed that can be put towards debt reduction. Bombardier is on pace to reduce leverage to less than 3.0x ahead of its original target of 2025.
Maintain OP, target increased to C$65.00
We maintain our Outperform rating on Bombardier and increase our target to C$65.00 from C$61.00 previously. Bombardier was one of the top-performing stocks in our coverage universe in 2022, up 24.5% (versus TSX down 8.7%) and the stock has continued its upward trend so far early in 2023. Given this outperformance, we no longer categorize Bombardier as one of our Top Picks (as it was in 2022), but we nevertheless maintain our positive view.