Long time aerospace investors can tell you that Bombardier’s (TSX:BBD.B) stock hasn’t been the most action packed place on the TSX for some time. A slide from more than $25 a dozen years to today near the $4 mark, where it lingers today, means the company’s shares have more in common with a tedious long-haul flight than high-flying airshow.
But around the historic Farnborough airshow, which took place earlier this month in Hampshire, England, interest in Bombardier perked up, if only slightly, because the company managed to book sales of it pending C-Series commercial aircraft.
Shareholders have been hoping Bombardier’s struggling commercial aircraft division to start to contribute to its bottom line. Bombardier CEO Pierre Beaudoin said lower deliveries of commercial aircraft were partly to blame for the company’s recent disappointing Q1, 2012 numbers which saw its topline fall to $3.5-billion, from $4.7-billion the company reported in the same period last year.
Byron Capital analyst Tom Astle says post-Farnborough, Bombardier is now entering a risky period in the development of the C-Series. He thinks strains on the company’s cash reserves will be high for at least the next eighteen months, and suspects that the total development cost for the C-Series could very well run higher than the company’s original estimate of $3.4-billion. In a research update to clients yesterday, Astle maintained his BUY rating on Bombardier, but lowered his twelve-month target price on the stock from $5.50 to $5.
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Bombardier is divided into two segments that deliver roughly the same amount of revenue, Bombardier Aerospace, and Bombardier Transportation. Bombardier Transportation is more profitable, delivering EBIT of $124-million in Q1 2012 on revenues of $2-billion, while Aerospace posted $91-million in EBIT on $1.5-billion in revenue.
Astle, who factors in little if any value for Bombardier’s commercial aircraft division, says a contribution from the C-Series is a long way off, considering sector margins are low, and amortizing $3-billion in program tooling costs, would require selling hundreds of planes.
At press time, share of Bombardier were up 0.8% to $3.89.