Bombardier’s recent selloff ‘overdone’
Share price’s fall not justified, analysts say
Bombardier Inc. still has runway to recover from its share price collapse despite investor concerns about the transportation giant’s financial challenges, industry analysts said Tuesday.
“Bombardier is a higherrisk investment but the recent selloff is, in our opinion, overdone,” says Kevin Chiang of CIBC World Markets.
Bombardier shares have fallen more than 60 per cent since July on unease about its hefty debt and ability to generate promised free cash flow.
The Montreal-based company’s shares gained about 2.9 per cent on Tuesday to $2.13 to trade below where they were in early 2015 even though its profitability has nearly doubled.
Even with Monday’s 24-per-cent rebound, the selloff is unjustified and absurd, Cameron Doerksen of National Bank Financial wrote, maintaining his target price at $5.50.
He criticized those who say the old Bombardier has resurfaced where it falls short of expectations especially when it came to free cash flow.
“We view this as unfair, noting that Bombardier is on track to meet or exceed the 2020 targets that were laid out at the company’s investor day in late 2015.”
The company is maintaining its target to generate US$750 million to US$1 billion in free cash flow in 2020.
Benoit Poirier of Desjardins Capital Markets said he remains bullish about Bombardier’s long-term value but expects its shares to remain volatile until investors regain confidence in its ability to generate free cash flows.
“We would also note that the market does not appear to have ascribed any value to the A220 partnership with Airbus, an opportunity that is underestimated, in our view,” he wrote.
Given market conditions, analysts expect Bombardier will delay the repurchase of the Caisse de dépôt’s 27.5-per-cent stake in its railway division valued at more than US$2 billion, beyond the February date when it can act.
The company won’t make any moves that would worsen its liquidity position, said Kevin Chiang of CIBC World Markets.
“We anticipate that Bombardier will bring the rest of BT (Bombardier Transportation) in house when the timing is beneficial to the company.”
Analysts also described the investigation by Quebec’s securities regulator into Bombardier’s executive stock plan as “noise,” adding it could take a few months to resolve.
On Tuesday, Reuters reported some good news. Bombardier is the frontrunner to win a New Jersey Transit (NJT) railcar contract, the agency said, citing two sources familiar with the matter. It’s a boost for the plane-and-train-maker’s North American business which has wrestled with delivery delays and has lost orders to rivals.
The order for up to 999 multi-level passenger cars, including options, would be one of the largest contracts in years if most of the options are exercised, one of the sources said.
Chinese state rail company CRRC Corp. was also vying for the contract. NJT ruled out the competing bid from the Chinese company, the sources said, although it was not immediately clear why.
CRRC and NJT did not immediately respond to requests for comment.
Bombardier Transportation spokesman Eric Prud’Homme declined by email to comment on what he called an “ongoing procurement.” He said the volume of the contract is 999 multi-level cars, but he said the “agency has not awarded the contract yet.”