Citi Citi analyst Stephen Trent thinks Bombardier Inc.’s “potentially greater penetration” of the global defence market could bring “important upside” to its margins going forward.
“This is because Bombardier probably doesn’t need to undertake significant, interior design work on individual jets destined for defence customers, as it does with corporate/high net worth customers,” he said. “With significant mission capabilities of Bombardier’s global aircraft, the company’s first Global 6500 jet delivery to the U.S. Army’s High Accuracy Detection and Exploitation System (HADES) program earlier this week could lead other militaries to take notice. The U.S. Army’s decision to acquire this product could also put Bombardier in a good position, in light of 2025E North America policy uncertainties.”
In a research note released Friday, Mr. Trent updated his forecast for the Montreal-based manufacturer to reflect “higher, expected aircraft price-point, stronger associated margins and 3Q’24 results.” That resulted in a increases to his full-year earnings per share projections for 2024 through 2026 to US$4.21, US$6.71 and US$8.30, respectively, from US$4.06, US$6.10 and US$7.93.
Alongside the introduction of its 2027 estimates, including EPS of US$10.70, that led him to increase his target for Bombardier shares to $113 (Canadian) from $109 with an unchanged “buy” recommendation. The current average on the Street is $118.07.
“Relative to its past, Bombardier now looks to be a much stronger, more stable company, with stronger FCF, even as ongoing global supply chain issues could put some constraints on the sector’s valuation,” Mr. Trent said.
Elsewhere, TD Cowen analyst Tim James named Bombardier to the firm’s “Best Ideas 2025″ list. He has a “buy” rating and $130 target for its shares.
“We believe a Bombardier re-rating is warranted given financial progress, 2-3 year forecast growth, deleveraging, revenue diversification, and returning capital to shareholders,” he said.
“We believe Bombardier is transitioning from a turnaround story to a multiple expansion story and that its large EBITDA valuation discount (3.6 times) relative to comps will decline as earnings increase, FCF power expands, balance sheet leverage declines, capital is returned to shareholders, and the equity market increasingly appreciates the declining risk profile.”
Mr. James added: “Re-rating warranted due to 2020-2023 results, 2024-2025 expectations, and opportunities beyond 2025: Aftermarket, defense, business jet volume upside; Cycle health: Industry book-to-bill ratios tracking at or above 1 times; Competitive position: BBD Q3 book-to-bill of 1.0 times, aircraft portfolio strong through late-20s, 244 aircraft order from NetJets for Challenger; FCF: Guidance for $900 million in 2025 (new high), more growth/diversification beyond; Return to shareholders: Sustainable investment-grade balance sheet by 2026, ability to grow capex, buybacks, dividends.”