TD: lowest valuation in 10 years and 25% FCF yield 2025 We have updated our forecasts to reflect the 2030 Senior Notes issue, redemption of 2025 Senior Notes, partial redemption of 2026 and 2027 Senior Notes and other minor modelling updates.
Impact: NEUTRAL
We are maintaining our C$100.00 target price and BUY recommendation. Our updated estimates reflect the recent debt refinancing, updated FX, interest rate, and industry assumptions, along with other minor modelling updates.
We view the debt refinancing as prudent de-risking of the company's maturity profile, which now has a 4.5-year weighted average term-to-maturity vs. 4.0 years previously. The next maturity is now June 2026, and we estimate that Bombardier will generate sufficient FCF to repay the next maturity without requiring additional capital.
Our view of Bombardier remains unchanged. We believe that the valuation fails to reflect the execution, franchise strength, growing FCF, deleveraging, and earnings resiliency to economic forces in 2024 and 2025. We believe order activity should remain strong through year-end, although a Q4 b:b below 1.0x should not be surprising, given the strong deliveries anticipated for the quarter. We believe Bombardier's high-quality, multi-year backlog and aftermarket revenue opportunity provide downside protection to earnings in the event of a slowdown in order activity. We believe Bombardier can continue to generate greater than $6.00 of annual FCF through the second half of the decade in spite of any requirement for investment in a new clean sheet aircraft.
Bombardier is trading at 6.2x forward EBITDA, in line with its lowest valuation in 10 years despite its significant financial, operational, and strategic progress. For investors who question the overall civil aerospace/private jet cycle, we note that Bombardier's relative valuation is also in line with the lowest in 10+ years vs. A&D comps and a group of high-end luxury company valuations. The share price represents an FCF yield of 18% on our 2024 estimate and 25% on our 2025 estimate.
TD Investment Conclusion
We believe that Bombardier's business aviation franchise is strong and that the declining financial leverage, backlog, production plans, and free-cash-flow visibility justify a higher share price.