Say what you will, there’s never a dull moment with Bombardier (TSX:BBD.B), what with the job cuts, the big contract wins (and losses) and the nosediving share price, not to mention corruption scandals, government bailouts. The list goes on.
But even with all that baggage, there’s now good reason to be optimistic, says Scotia Wealth’s Greg Newman, who argues that the stock looks like it’s nearing rock bottom.
“I think what investors are really concerned about is that on their last [quarterly earnings] they pushed out their recovery to 2020, and I think that begs the concern, what if a recession happens before their recovery is complete?” says Newman, director and portfolio manager at Scotia Wealth Management, to BNN Bloomberg.
“It’s always been a
risky name and it’s certainly a ‘risk-off’ time and the tax-loss selling really doesn’t help [Bombardier’s] last quarter was a cash flow miss, and it’s a cash flow story.”
“But the last time it was trading at this level they were a much, much riskier story in terms of their balance sheet,” he says.
Already on a precipitous slide, Bombardier stock dropped sharply last month with the one-two punch of a disappointing third quarter report along with management’s announcement of restructuring cuts totalling 5,000 jobs, 3,000 of which would be from the company’s Canadian workforce.
BBD hit a five-year high of $5.58 this past July but has since been on the decline, briefly reaching as low as $1.59 by mid-November (the stock is at $1.98 in late-day trading on Thursday). Yet Bombardier management announced earlier this month that it expected ten per cent revenue growth over 2019, attributed in part to its surging business jetliner and swelling rail backlog.
“They’ve dramatically improved their balance sheet with share issuances and with asset sales and they’ve now become a part of the Airbus ecosystem which can help legitimize and better their chances of getting new orders,” says Newman. “Our analyst believes that if we do go into a recession, on the worst-case multiple, this stock should be trading at $1.66, and it’s close to that right now.”
“If that’s the case, then I think it’s a very asymmetric bet,” he says. “I think there’s a lot of upside to this name if we don’t have a recession and if they execute. And there’s not that much downside, so as long as you’ve got the stomach for it and you have the correct positioning in your account and you can add to a name like this then I think, yeah, you can pick away at it.”