Bombardier has runway to recover from share price collapse, say analysts
Bombardier Inc. still has runway to recover from its share price collapse despite investor concerns about the transportation giant's financial challenges, industry analysts said Tuesday.
"Bombardier is a higher-risk investment but the recent selloff is, in our opinion, overdone," says Kevin Chiang of CIBC World Markets.
Bombardier shares have fallen more than 60 per cent since July on unease about its hefty debt and ability to generate promised free cash flow.
The Montreal-based company's shares gained 3.1 per cent on the day to $2.14 to trade below where they were in early 2015 even though its profitability has nearly doubled.
Even with Monday's 24 per cent rebound, the selloff is unjustified and absurd, Cameron Doerksen of National Bank Financial wrote in a report, maintaining his target price at $5.50.
He criticized those who say the old Bombardier has resurfaced where it falls short of expectations especially when it came to free cash flow.
"We view this as unfair, noting that Bombardier is on track to meet or exceed the 2020 targets that were laid out at the company's investor day in late 2015."
The company is maintaining its target to generate US$750 million to US$1 billion in free cash flow in 2020.
Benoit Poirier of Desjardins Capital Markets said he remains bullish about Bombardier's long-term value but expects its shares to remain volatile under investors regain confidence in its ability to generate free cash flows.
"We would also note that the market does not appear to have ascribed any value to the A220 partnership with Airbus, an opportunity that is underestimated, in our view," he wrote.
Given market conditions, analysts expect Bombardier will delay the repurchase of the Caisse de depot's 27.5 per cent stake in its railway division valued at more than US$2 billion, beyond the February date when it can act.
The company won't make any moves that would worsen its liquidity position, said Kevin Chiang of CIBC World Markets.
"We anticipate that Bombardier will bring the rest of BT (Bombardier Transportation) in house when the timing is beneficial to the company."
Analysts also described the investigation by Quebec's securities regulator into Bombardier's executive stock plan as "noise", adding it could take a few months to resolve.
Companies in this story: (TSX:BBD.B)