The stock was one of the best performers on the TSX in 2021 but don’t expect fireworks again this year from Bombardier (Bombardier Stock Quote, Charts, News, Analysts, Financials TSX:BBD.B). That’s according to portfolio manager John Zechner who says the Canadian plane-maker pandemic windfall was a case of being in the right place at the right time.
“You have to put the performance in the past year which has been very strong into perspective,” said Zechner, Chairman and founder of J. Zechner Associates, who spoke on BNN Bloomberg on Friday. “This stock traded around $12 before the financial crisis and it was closer to $6 dollars in 2018. It got down below 30 cents last year, so the fact that it bounced back this year, if you’re a long-term holder then you’ve been disappointed.”
It’s been an unsettling few years for fans of Bombardier, which has whittled itself down from being a global transportation giant with commercial plane and train-making segments to now focusing its energies on one field alone in business jets. That’s meant shedding the C-Series plane program to Airbus, its CRJ planes to Mitsubishi and selling its train division this past year to Alstom. Now, Bombardier is working on clearing up its debt, having removed about $3 billion of debt over 2021, and developing its Global and Challenger series.
With a current market capitalization of $4.1-billion, Bombardier finished 2021 with a return of 250 per cent, a welcome change over 2020 where the stock lost about 75 per cent of its value.
“It’s been bad business decision after bad business decision,” said Zechner. “Going head-to-head with Boeing and Airbus [on the C-Series], you might have to rethink that, and then when COVID broke the rail division was up for sale at the time and there was a little worry whether that would actually go through. And on top of that they had a really very levered-up balance sheet.”
“They got the sale done. Obviously, they got out of the C-Series completely and then they sort of walked away with no value. Miraculously, the balance sheet is cleaned up a little bit, and what they’re left with is basically private jets which because of COVID have really become a very hot area in a lot of ways for travel,” he said. “They ended up by default or by luck in probably a pretty good area and that probably gave a little bit more speculation to the stock.”
Overall, business is looking better for Bombardier, which reported encouraging free cash flow generation in recent quarter. For the company’s third quarter 2021, delivered in late October, Bombardier saw $100 million in free cash flow from continuing operations compared to a loss of $647 million a year earlier. (All figures in US dollars except where noted otherwise.)
Q3 revenue from its business aircraft was $1.449 billion compared to a restated $1.405 billion a year ago and adjusted EBITDA was $142 million compared to $84 million for the third quarter 2020. Its adjusted EPS was negative $0.04 per share compared to negative $0.09 per share a year ago. On average, analysts had been expecting $1.37 billion in third quarter revenue and an adjusted loss of $0.05 per share. Bombardier said it ended the quarter with pro-forma liquidity of $1.9 billion and a backlog of $11.2 billion, up about $500 million year-over-year.
“We are delivering consistently on what we set out to do, especially when it comes to deleveraging the balance sheet. Thanks to the hard work of our outstanding team, we cleared the debt maturity runway on plan,” said President and CEO Éric Martel in a press release. “As a fantastic finale to the quarter and at a great moment in time for our industry, we launched our new Challenger 3500 jet last month. The extremely positive reception and strong first orders for the new aircraft are clear evidence that we were able to bring significant value to customers through measured and disciplined investments.”
For Zechner, Bombardier is still off-limits due to a lack of strong growth prospects.
“We don’t own it right now,” Zechner said. “Although the balance sheet is still stretched the valuations in terms of enterprise value to operating cash flow is still excessive for a company [for which] I don’t see that great growth.”
“It’s been a long, hard road for investors, but yeah, it certainly had a nice bounce off the bottom,” he said.
Last month, Bombardier marked the delivery of its 1,000th Global aircraft by announcing the first delivery of its Global 7500, billed as the longest-range business jet, to US business jet charter service NetJets. Bombardier said the plane would be the first of 20 delivered to NetJets.