Bombardier could go under, this investor says

Bombardier (Bombardier Stock Quote, Chart, News TSX:BBD.B) has taken some big steps in recent years to cut down on its losses, but debt remains a big problem for the Canadian transportation company, says analyst Benj Gallander, who warns that the stock is too risky to touch at the moment.

Bombardier’s share price kept tumbling last week, with the stock now below $2.00 per share and threatening to hit lows last seen in 2016. The company is in the middle of a five-year turnaround with next year proposed as the last leg of the reorganization, aimed at getting the company’s looming debt under control.

Bombardier has shed much of its commercial aircraft business so as to concentrate on its rail transportation segment. The downloading started last year with the company selling its C Series program to Airbus, followed this year by the sale of its Q400 Dash 8 program to Aviation Capital and the announcement that Mitsubishi Heavy Industries is expected to acquire Bombardier’s CRJ program by next year.

“This is another company that has a tremendous amount of upside but it could also go under…”

But the market has yet to take to Bombardier’s plan, with the stock now down 63 per cent over the past 12 months. Earlier this month, Bombardier released its latest quarterly numbers, which featured revenue of $4.3 billion, a nine-per-cent organic growth rate and a net loss of $36 million or four cents per share. Analysts had been expecting a profit of $70 million or two cents per share.

At the same time, management also dropped its earnings guidance from between $1.50 billion and $1.65 billion to between $1.20 billion and $1.30 billion and cautioned that it will need to spend an additional US$250 to $300 million this year in order to complete a number of projects on the go, with the company’s cash burn for 2019 now expected to total $500 million.

The spending rate is a serious issue, says Gallander, co-founder and president of Contra the Heard, who spoke to BNN Bloomberg last Friday.

“Bombardier has a lot of problems. They still have a huge debt load,” says Gallander. “I owned it years ago and I sold it with a decent gain but not when it hit my initial sell target and usually I wait. The reason was that they then had the C Series and they were spending an incredible amount of money on it, just burning cash and it didn’t make any sense to me.”

Gallander says the billions of dollars in government support that Bombardier has received over the years could become harder to come by as the company completes its transformation.

“They’ve gotten rid of a lot of their operations and they’re moving a lot of their operations outside of Canada,” he says. “They’ve had tremendous government support but I don’t know if the province of Quebec and the feds would want to support them in the same way going forward. I would be very, very wary of this one. It was a great Canadian company that no longer is.”

“This is another company that has a tremendous amount of upside but it could also go under,” he says.