Bombardier Not Flying So High, for Now
Slumping regional aircraft sales are weighing on the stock, but we think this provides a good entry point for investors.
Bombardier's (BBD.B) stock currently reflects negative sentiment about its weak position in the regional aircraft market. Its anemic orders and deliveries are casting a shadow over the rest of the business, which we believe continues to perform well, particularly in rail transportation. We agree these concerns are warranted, but the problematic regional aircraft segment only generates 15% of total company sales. Our estimates call for continued weakness in regional aircraft and a gradual improvement in rail transportation to arrive at a fair value estimate of CAD 7. Still, a new recession could reduce demand for business jets and worsening conditions in Europe have the potential to cause contract delays in rail transport, thus pressuring the stock somewhat from current levels. But considering the many scenarios, we think the stock currently provides a good entry point for investors.
Planes, Trains, and Snowmobiles
Bombardier started operations back in the 1930s as a snowmobile manufacturer and launched the world-famous Ski-Doo brand in the late 1950s. The 1973 oil crisis forced the company to move away from snowmobiles and enter the rail transport business with the acquisition of Lohnerwerke. Bombardier entered the aerospace arena with the 1986 acquisition of Canadair, which manufactured the Challenger business jet. Bombardier launched the 50-seat Canadair Regional Jet, or CRJ, program in 1989, followed by the 70-seat CRJ 700 in 1997. Both divisions continued to expand products and geographies through acquisitions over the last 25 years. The fallout from 9/11 and a weakening global economy led the company to narrow its focus and divest several assets, including the recreational products division, in 2003.
Neal Dihora does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.