With its share price in a tailspin, investors may be wondering if now’s the time to take advantage of Bombardier’s (Bombardier Stock Quote, Chart, News TSX:BBD.B) troubles. But you might be jumping onto a sinking ship, says Keith Richards of ValueTrend Wealth Management, who argues that until there are signs of optimism in the stock’s performance Bombardier should be avoided.
The news cycle is off the rails on Bombardier this week as reaction to its latest quarterly results and to management’s commentary have left the door open to a number of potential scenarios for the beleaguered transportation company. Selling off the remains of its plane business could be in the cards, while an outright acquisition of the past-paragon of Canadian manufacturing is also a possibility.
Bombardier’s share price lost a third of its value on Thursday as the market reacted to the company’s release of preliminary fourth quarter financials, which included lowered guidance as a result of problems with its European rail projects and intimations by management that the company’s A220 program partnership with Airbus might be subject to a writedown. Management also cut in half its 2019 forecast on adjusted earnings to $400 million, with the company’s free cash flow diving to negative $1.2 billion for the year as compared to the previously stated negative $500 million.
President and CEO Alain Bellemare reiterated that the company’s immediate goal is to address its debt, with the sale of major assets being one option.
“Since launching our turnaround plan, we have addressed our underperforming aerospace assets, completed our heavy investment cycle, and put the Company on a solid path toward organic growth and margin expansion while prudently managing our liquidity and heavy debt load,” said Bellemare in a Wednesday press release.
“The final step in our turnaround is to de-lever and solve our capital structure. We are actively pursuing alternatives that would allow us to accelerate our debt paydown. The objective is to position the business for long-term success with greater operating and financial flexibility,” he said.
The news brought about a 37-per-cent drop in the stock’s value over two days, bringing BBD to $1.12 per share, territory not seen since the early days of the company’s proposed turnaround in 2016.
The downturn might be tempting to some investors interested in trading the stock on a rebound, but that falling knife should be resisted said Richards, president and chief portfolio manager at ValueTrend, who spoke about BBD’s prospects from a technical perspective on BNN Bloomberg on Thursday.
“I’m not a fan. We’ve not liked it, forever,” Richards said. “After falling in 2018, the stock barely consolidated but if you look at it before [Thursday’s] news came out, it was making lower highs. This is not a bullish formation.”
“And the break of the current point, technically speaking, is below the last low by a wide margin. I would totally avoid this stock unless technically it showed some move, in other words, a series of higher highs and higher lows,” he said.
“I can’t say enough negatives about this company from so many perspectives,” Richards added.