After years of charting through murky weather, the skies seem to be clearing for Bombardier Inc. (TSX:BBD.B).
But is the stock now overvalued? Probably, says Alex Ruus of Arrow Capital Management.
Supply chain issues, production delays on its C-Series jet, government handouts — the list of issues was long for Montreal-based Bombardier. And it showed in its share price, which tumbled over much of the past decade. But the turnaround began early in 2016 and now the company and the stock haven’t looked so good in a long time.
That’s not to say that it’s is a buy, though.
“Kudos to the new management team — they’ve done a phenomenal job working through a lot of problems,” Ruus said to BNN Bloomberg. “We think the company is going to do really well. The stock has already had a big, big bounce, so I’m having a hard time looking at it. I like where the company is going, but the balance sheet is still really levered, and if they stumble someplace here, there still could be some difficulties.”
Along with the general approval that Bombardier seems to be getting with regards to its C-Series deal with Airbus, the company has been racking up the contract wins in its rail division, including a joint venture worth US$4.9 billion to build and operate a passenger transit system at the Los Angeles International Airport.
“Bombardier has great products. I don’t think there’s ever any discussion that these products weren’t great,” says Ruus. “The trouble was that they overspent in developing the C-Series and they took on too many new projects and levered the balance sheet up way too much and now, the sale of half the program to Airbus and eventually the full program to Airbus over the next ten years is probably going to turn out very positively for Bombardier. They’ve got the transportation division turned around.”
Ruus also likes the company’s new Global series of business aircraft, which will hit a increasingly lucrative market, he says.
“They’re close to introducing probably the premium business jet in the entire world, and I think they’re going to get a lot of sales. Business jets are probably one of the most profitable portions of commercial aerospace,” he says.
Currently sitting in the high-$4.00 range, Bombardier’s share price is up 62 per cent in 2018 with a market cap of $10.7 billion.
“To me, it’s a Hold here,” says Ruus. “I like what they’re doing and where they’re going … [but] the stock has run too far and so I wouldn’t be a buyer here.”