Bombardier posts impressive Q1 profit
TORONTO — An impressive first-quarter result helped Bombardier Inc.’s share price rise yesterday to within cents of the Street’s expectations for the year, which triggers the question whether analysts are being overly conservative in their forecasts or are they simply waiting for the other shoe to drop?
Investors appear to have bought into the expectation that Bombardier will launch its new 110- to 130-seat CSeries aircraft, that orders for its trains will continue to roll in, and that the Montreal-based manufacturer will make good on its promise to improve profitability in the years ahead.
Bombardier also reinstated a 2.5cent quarterly dividend yesterday after three years without.
Since the start of the year, the company’s share price has shot up 46 per cent and more than doubled its 52-week low of $4.06, reached on Jan. 21 after three Q400 crashes in Europe and troubles with its contract to rebuild the London Underground conspired to drag down the stock.
But Bombardier reported firstquarter net income of $226 million US, or 12 cents a share, up from four cents a share during the same period last year. It beat the Street’s estimate of eight cents.
The better-than-expected result helped push the company’s share price to its highest point in nearly six years. The shares closed at $8.90 on the Toronto Stock Exchange. The nine per cent gain contributed to a 12.6 per cent run this week alone.
But despite the apparent investor enthusiasm, the Street appears to be erring on the side of caution, with a 12-month price target consensus of $8.95 a share.
Cameron Doerksen, Versant Partners analyst, suggested that those who have held the stock during the current run may want to consider cashing in their chips.
“The stock is up 113 per cent from its 52-week low reached in January, and we believe is reaching close to fair value,” he said.
The risk that soaring fuel prices will dampen demand for regional jets and the possibility that businessjet orders have peaked is real, Doerksen said, adding that if the CSeries fails to launch at the Farnborough air show in July, it will likely send the stock into a tailspin.
While he raised his share price target to $9 on the earnings, he lowered Bombardier’s rating to “hold” from a “buy” because of the limited upside on his target.
Pierre Beaudoin, Bombardier’s new chief executive, denied a report this weekend that an order had been placed by China Southern Airlines for the CSeries, but said there have been talks with Chinese carriers and conceded that the air show would be “ideal” for a launch.
“The timing will be decided by our customers,” he said. “We feel good about launching in 2008.”