Bombardier could get Q3 lift, but bigger challenges remain

Bombardier Inc. may get a boost in the coming weeks from a potential earnings beat on Oct. 30 and higher estimates coming out of the quarter, J.P. Morgan said in a new report.

It’s been a difficult year for the Canadian aerospace giant, as its shares are down more than 20%. Yet analyst Joseph Nadol raised his third-quarter earnings per share forecast for Bombardier to 12¢ on Monday, putting him above the analyst average of 10¢. His 2015 estimate of 50¢ also exceeds the 43¢ average of other analysts.

Mr. Nadol’s more optimistic outlook stems from higher margins expectations from Bombardier’s Transportation segment, coupled with restructuring activity in its Aerospace division.

He also assumes a one-quarter delay for the company’s CSeries aircraft, which pushes back production losses and interest expenses, thereby boosting EPS.

“Beyond the numbers, improving business jet sentiment could help near term, although the stock somewhat surprisingly did not have much of a reaction to Textron’s strong Q3 on Friday,” Mr. Nadol told clients, adding that a recovering key end market could have a positive impact on Bombardier shares.

However, the analyst continues to rate Bombardier at underperform since he believes it faces some of the most significant multi-year challenges in its peer group.

Mr. Nadol considers the CSeries a key risk, noting that production losses and the expensing of interest payments will produce an EPS decline of roughly 40% in 2016-17. That assumes the program enters service and ramps up production smoothly, “an outcome we cannot take for granted given weak demand and the execution risks that accompany all new aircraft programs.”