Bombardier is dead in the water, this fund manager says

Canadian plane and train maker Bombardier (Bombardier Stock Quote, Chart, News TSX:BBD.B) may be making progress on its turnaround but the stock is going nowhere fast, says portfolio manager Keith Richards, who advises investors to put their money to work elsewhere.

Montreal-based Bombardier has seen its share price rise over the past few weeks as the markets reacted to the company’s latest moves to trim the fat with a sale of its aerostructures business. BBD rose from a low of C$1.57 per share on October 31 to C$1.96 a few days later on the back of quarterly results and a $1.2-billion deal which will see its aerostructures business go to Spirit AeroSystems Holdings, a transaction that has the latter paying $500 million in cash and assuming liabilities of more than $700 million. (All figures in US dollars unless where noted otherwise.)

“We achieved another key strategic milestone towards building a lean, efficient and strong business aircraft franchise,” said Bombardier chief executive Alain Bellemare in a news conference on the deal.

Bombardier is in the middle of a multi-year turnaround aimed at cutting debt and concentrating on its more profitable segments in business-class jets and trains. The company has already sold off its C Series narrow-body medium-range jet program to Airbus while earlier this year selling its regional jet program to Mitsubishi Aircraft, as the company concentrates its focus on its Global business aircraft program.

“We continue to make progress driving our turnaround,” said Bellemare, in the company’s third quarter press release on October 31, where the company posted revenues of $3.7 billion, an eight-per-cent organic growth rate, and adjusted EBIT of $143 million, down from $267 the previous year.

“At Aviation, the recent certification of our new Global 5500 and Global 6500 aircraft, and the outstanding in-service performance of our new Global 7500, highlight the strength of our business jet franchise. At Transportation, we are turning the corner. We are making steady progress working through our legacy projects, giving us confidence in our ability to deliver stronger financial performance,” Bellemare added.

But in spite of the company’s improvements, Richards says that it’s likely a while before investors will see any positive movement on the stock.

“[Bombardier] has been one of those dead in the water stocks —and that’s our tax dollars hard at work,” said Richards, president and chief portfolio manager at ValueTrend, speaking to BNN Bloomberg Friday.

“It’s consolidating, and, technically, it has to break,” he says. “It tried and failed back earlier in the year. I wouldn’t touch the stock because there are absolutely no signs.”

At the moment, Bombardier’s share price is even for 2019, although the stock has fallen a long way from a high of $5.58 back in July of 2018 to its current $2.00 range.

“It’s the racehorse theory: why would you own this when the Industrials and US banks and things like that are breaking out, so why would you own something that’s just moving sideways. It’s not bearish, it’s just not bullish. It’s dead money, so you have to decide, do you want to sit on it while everybody else makes money or do you want to move into something else?” Richards says.