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Bombardier is a buy, Desjardins says (May, 2024)

BBD.B

The stock has climbed slowly but surely since last October. But is there still money to be made on Bombardier? (Bombardier Stock Quote, Chart, News, Analysts, Financials TSX:BBD.B).

Yes, says Desjardins Securities analyst Benoit Poirier who May 2 maintained his “Buy” rating and raised his price target on BBD.B from $101.00 to $102.00.

As reported by The Globe and Mail, the analyst attended the company’s annual investor May 1 and came away impressed.

“BBD reaffirmed its 2025 targets, noting that it is well on track to meet its objectives, and provided additional details on how it plans to achieve them,” Poirier wrote. “This should provide investors with confidence that the US$900-million FCF target is achievable—consensus (US$854-million) is currently below this threshold. BBD also introduced new long-term 2030 growth target, but most importantly, (1) they can all be achieved organically with internal resources and limited capex; and (2) are incremental and do no count on any increase in deliveries as management indicated that the 150 aircraft/year will be the new cruising altitude. We view this as positive as BBD has in the past (previous management team) over-delivered and chased volume/sales to fund its civil investments (and investors have long memories). BBD is a much different company today with a different business plan; back in 2008–09, BBD had a significant percentage of its backlog exposed to bizjet resellers/agents/speculators with unfavourable payment terms (cancelled orders when the Great Financial Crisis hit), in addition to having exposure to the more elastic light jet market with the Learjet. Since then, BBD has cancelled all of those reseller agreements and now uses an internal sales team (no exposure in current backlog) and no longer manufactures any light jets (discontinued Learjet in 2022).”

The analyst broke down the numbers he expects to see from Bombardier.

“Assuming a 22-per-cent EBITDA margin in 2030, which we believe is a fair estimate given the greater mix weighting to aftermarket, defence and pre-owned (all three of these businesses generate accretive 20-per-cent-plus EBITDA margins) and given BBD’s previous 2025 EBITDA margin target was 20 per cent (an additional 200 basis points of expansion over five years does not seem like that far of a stretch), we calculate a potential EBITDA contribution of US$2.860-billion in 2030,” Poirier said. “Stripping out the capex target of US$300-million as well as a fair assumption for cash interest and working capital investment, we derive potential FCF of US$1.960-billion in 2030. This implies a 16.8% CAGR [compound annual growth rate] vs the 2025 target of US$900-million, and total potential FCF of US$7.353-billlion from 2026–30. This amount of cash can be applied to various endeavours as we explore in the paragraph below. To conclude, placing our current valuation exit multiple of 8.6 times on our 2030 EBITDA assumption, and making some conservative assumptions for leverage and share buybacks, we calculate a potential target price of C$326, which implies a seven-year CAGR vs yesterday’s close of 25.2 per cent.”

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