Note from LB1: Without regards to their targets, RBC and Desjardins analysts give the most original and sound analysis among the brookers analysts.
Our view:
We see the 2023 Investor Day as a major catalyst for the stock,
as it is possible that we may see an upward revision in the company's
2025 targets as well as the unveiling of new multi-year targets (including a
whole new revenue stream in certified pre-owned). Key is that, in our view,
earnings from the 2025 targets have not yet been appropriately reflected
in current valuation, let alone the new post-2025 earnings we expect to
be unveiled this week. We reiterate our Outperform rating and $89 price
target.
Key points:
Bombardier management will host its 2023 Investor Day in virtual format
on Thursday, March 23. We believe this will be a key event and catalyst for
the stock on the following basis:
• Expect 2025 guidance to be raised. Management first issued its multiyear plan in March 2021, which provided key targets for the company
out to 2025. Given the strong trends from 2021 to 2022, together with
the solid guide for 2023, it seems clear to us that 2025 targets will be
raised meaningfully. Indeed, FCF, which BBD had initially targeted to turn
positive in 2022, actually reached $735MM in 2022, thus allowing the
company to reduce its leverage ratio much more quickly than expected
(we believe the 3x leverage that was targeted for the end of 2025 will be
achieved as much as two years early). Details of the key metrics guided
are shown in Exhibit 1; however, notable is that we expect 2025 revenue
targets to increase well north of $8B from $7.5B, EBITDA to $1.8B (from
2025 target of $1.5B), and FCF to upwards of $516MM (from prior target
of >$500MM).
• New multi-year guidance could be unveiled. It is still uncertain whether
or not management will provide new multi-year targets; however, we
believe there is a good chance it will. The key message will be that the
journey does not end in 2025. New multi-year targets could include: 1)
continued business jet production ramp on solid demand and improving
supply chain; 2) higher revenue target for aftermarket service revenue;
3) issuing guidance for an entirely new revenue stream in Certified Preowned (CPO); and 4) higher EBITDA and FCF targets.
• Bombardier our top investment idea. Bombardier’s strong success
toward achieving its 2025 targets has, in our view, significantly enhanced
the value of the stock, evidenced by the 137% rise in share price since
the targets were unveiled. Key, however, is that, in our view, earnings
and cash flow from the 2025 targets have not yet been appropriately
reflected in the current valuation, let alone the new post-2025 cash flow
streams we expect to be unveiled this week. With the shares trading
at 5x vs. peers at 10x on EV/EBITDA (2025E), we see avenues for both
an upward re-rate on the multiple and step-function higher EBITDA to
which that multiple is applied. We reiterate our Outperform rating and
$89 price target.