Bombardier wins price target raise at RBC

Bombardier’s (Bombardier Stock Quote, Chart, News, Analysts, Financials TSXV:BBD.B) second-quarter results came in lighter than expected, but RBC Capital Markets analyst James McGarragle says investors should focus on the company’s free cash flow outlook, not the Q2 miss.

As reported by the Globe and Mail, McGarragle, in a July 31 note, said management is pointing to strong order activity, a solid delivery pipeline, and a favourable shift in aircraft mix as reasons it could land at the upper end of its full-year FCF guidance. He now expects free cash flow to hit $795-million in 2025, which would imply a 7% yield on his forecast and support what he calls a “compelling investment opportunity.”

Bombardier shares dipped 0.7% following the results. The company reported US$297-million in EBITDA for the quarter, missing both McGarragle’s and the Street’s US$336-million estimate. The shortfall was tied to lower revenue and margins, which he attributed to a heavier mix of Challenger aircraft deliveries.

Bombardier reported a sharp increase in orders in the second quarter, supported by strong activity from its defence division and a new customer order for 50 firm aircraft and 70 options. Service revenue rose 16% year over year, and the company continued to expand its service network and offerings.

“The Bombardier team has performed at a very high level in the first half of the year, setting our company on the path to meet 2025 guidance and confidently step into the future with a large, diversified backlog, an expanding service infrastructure, new Defense opportunities and the world’s fastest business jet, the Global 8000, crowning a second-to-none portfolio,” Bombardier President and CEO Éric Martel said. “Demand for our products and services remains strong in traditional business jet markets, and continues to garner new opportunities in defence markets. Our diversified growth mindset took center stage at the Paris Airshow, where Bombardier Defense deepened existing ties, forged new ones and secured strategic orders. We have the right ingredients in place to succeed in the near term and the right foundations to sustainably grow our business long-term.”

Still, McGarragle doesn’t see the Q2 print as a major concern. “Margins are expected to improve in the second half,” he said, helped by increased Global aircraft deliveries, which carry higher profitability.

Management reaffirmed its 2025 guidance, which includes a free cash flow range of $500- to $800-million and EBITDA of more than $1.55-billion. McGarragle now expects EBITDA of $1.55-billion for 2025, down slightly from $1.58-billion, and $1.7-billion in 2026.

He said the demand environment is firming, with U.S. orders benefiting from 100% bonus depreciation and increased interest globally in specialized mission aircraft, including the Global 6500. Defence-related sales and new European partnerships are also helping build the backlog.

Raising his target price to $202 from $175 —now the highest on the Street— McGarragle kept his “Outperform” rating, saying Bombardier offers what he sees as the best long-term growth profile in his coverage universe and remains undervalued on a free cash flow basis.

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