BBD.B wins price target raise at Desjardins

Things are looking up for Bombardier (Bombardier Stock Quote, Chart, News, Analysts, Financials TSX:BBD.B) says Desjardins analyst Benoit Poirier.

As reported by the Globe and Mail, Poirier December 10 raised his 12-month price target on BBD.B from $103.00 to $104.00, while maintaining his “Buy” rating. Shares of the company closed January 9 at $55.90, meaning the analyst’s target implied a return of 86 per cent at the time of publication.

“Aside from capital allocation, we do not believe BBD is close to the end of its revival process,” the analyst wrote. “We see greater contribution from aftermarket and defence growth. We are taking a cautious approach in relation to our valuation, using an EV/EBITDA multiple of 8.25 times, but believe an improvement in the leverage ratio to 1.6 times in 2025 would likely command a higher valuation. Applying a 9 times multiple to our 2025 adjusted EBITDA estimate results in a value of $167 per share. We note that the valuation for the recent flyExclusive SPAC was rich at 12.7 times EV/FY2 EBITDA despite expectations for EBITDA margin in 2024 of only 10.4 per cent, below the 13.6 per cent posted by BBD in 2022. This suggests strong investor appetite for the sector and signals that some multiple expansion for BBD could be in the cards as it reduces its risk profile and continues to expand its manufacturing and servicing capacity (only bizjet OEM pure-play investment). Under a blue-sky scenario, we believe a 10 times multiple could be justified, which would drive a value of $189 per share—providing a significant potential return from the current share price. Despite strong fundamentals for the bizjet industry and the above-noted positive developments, the stock is trading at a 45-per-cent discount vs peers (GD, TXT, ERJ and AM) on an EV/EBITDA FY2 basis —which is unjustified, in our view. We believe that management is well on track to meet, or even exceed, its 2025 targets with its key margin and revenue expansion strategic initiatives.”

Poirier broke down the numbers he expects from Bombardier in 2024.

“From a 2024 guidance perspective, we expect management to call for revenue of more than US$8.0-billion, adjusted EBITDA of more than US$1.300-billion, adjusted EBIT of more than US$900-million, FCF of more than US$450-million and greater than 142 bizjet deliveries, sustaining a book-to-bill ratio of 1 times,” he said.