Buy Bombardier, this portfolio manager says

Shares of Bombardier (Bombardier Stock Quote, Chart TSX:BBD.B) have been on a steep nosedive since mid-summer but the Canadian train and aerospace company is still looking good, at least in comparison to where it was a couple of years ago.

Time to buy? Yes, says Andrew Pink, portfolio manager at LDIC Inc, who likes the company’s improving balance sheet.

Bombardier’s travails over the past half-decade are well known to most Canadians who have watched as the company’s spiraling debt turned the once international success story into a prime candidate for bankruptcy, with a government bailout package delivered in 2017 only feeding into concerns about the company’s future.

The debt problem seemed insurmountable: between 2014 and 2016, Bombardier generated negative free cash flow of US$4 billion and piled up US$9 billion in debt. But a new rash of contracts and a deal with Airbus to take on its C-Series jet program have seemingly righted the ship. In the company’s latest quarterly earnings in August, Bombardier produced EBITDA of US$336 million, up from US$313 million year-over-year, on revenue of US$4.26 billion, a three per cent year-over-year increase.

“Bombardier went through a lot of trouble when they built out the C-Series planes,” says Pink, in conversation with BNN Bloomberg. “They got themselves very much over-leveraged, and this is a constant theme we see within the industry. But they’ve sold off the C-Series and they’ve de-levered.”

“I would buy that company and their preferred [shares] at the moment,” he says.

Bombardier’s share price clawed its way back from a low of just $0.72 in early 2016 to hit a high of $5.58 by July 11 of this year. Since then, however, the stock has lost over 40 per cent of its value, dropping a full ten per cent in trading on Wednesday.

“The stock price is coming off,” says Pink. “I’ve looked at the equity as a potential long but I’m going to wait it out a little on that. We own the bomber C-Series preferred shares. I do like them. You really have to look at the financials and the credit quality and I think that’s been improving, so I think you can hold these.”

Bombardier is currently dealing with allegations of bribery and corruption related to a locomotive project in South Africa, while the company recently received certification from Transport Canada for its Global 7500 business jet.