RE:Scotiabank downgrade, no clue why "less conviction in 2025"Here are a few more details. Interesting that his target still exceeds Street consensus by $2.50. GLTA Scotia Capital analyst Konark Gupta is “taking profits” from Bombardier Inc. , downgrading his rating for its shares to “sector perform” from “sector outperform” ahead of the release of its third-quarter results on Nov. 7.
“BBD has been executing well, and we see some upside risk to 2024 margin guidance, but we now have less conviction in 2025 guidance and are also being mindful that the stock has more than doubled since February,” he said.
In a note previewing earnings season for Canadian aerospace and defence companies, Mr. Gupta did “slightly” improved his free cash flow projection for Bombardier’s quarter to negative US$37-million, down $117-million year-over-year but up US$31-million from the second quarter.
“Recall that BBD was expecting continued FCF burn in Q3 due to further inventory build in order to support significant Q4 deliveries,” he said. “We have slightly increased our Q3 bizjet delivery and aftermarket sale assumptions, which brings us roughly in line with consensus on revenue and EBITDA. We expect order activity to remain strong, although the book:bill ratio (unit) could modestly increase from 1.0 times in Q2 due to a lower delivery base (30 in Q3 vs. 39 in Q2). As a reminder, a few bizjet deliveries were pulled forward into Q2 while Q3 deliveries are also usually impacted by summer holidays. At this time, we expect BBD to meet management’s full-year guidance for deliveries (150-155), revenue (US$8.4-US$8.6-billion) and FCF (US$100-US$400-million) although margins could rebound in 2H to potentially exceed full-year EBITDA guidance (US$1.3-US$1.35-billion).”
The analyst expressed caution for the company’s 2025 targets for EBITDA margin and FCF, which he thinks “imply significant incremental margin and working capital improvement in 2025 vs. 2024.”
Mr. Gupta maintained his $120 target for Bombardier shares, exceeding the average on the Street is $117.57.