Versant Analyst: Bombardier Down Heavily, But Opportunities for Growth Remain

Shares of Bombardier Inc. (BDRAF.PK) are down roughly 45% in the past three months as investors express their concern about the state of the company's markets in an economic downturn. There is a risk of cancellation and deferrals in the company’s regional and business jet backlog, but one analyst said a significant downturn is already priced into the stock.

Bombardier is trading at a relatively low 15 times worst case earnings scenario, according to Versant Partners analyst Cameron Doerksen. Even if things do turn out to be that bad for its aerospace division, he estimates that Bombardier would still be able to produce earnings per share of C$0.24.

Mr. Doerksen told clients:

With a substantially higher business jet backlog, a vastly improved balance sheet, and a significantly more profitable Transportation division, Bombardier is in much better shape now than it was prior to the last slowdown.

While he cut his price target from C$7.50 to C$6.50, it still represents upside of more than 60%.

The analyst thinks Bombardier’s C$31-billion Transportation backlog is safe from major cancellations, while opportunities in China, India and more traditional markets like Europe could even provide growth. One of the factors supporting this thesis is government support of infrastructure projects to bolster the economy.

While Mr. Doerksen estimates that 64% of Bombardier’s turboprop backlog is safe, at the same time he thinks only 43% of Bombardier’s CRJ backlog can be considered completely secure. For example, delivery of ten CRJ900s to the Iraq government has begun, but a legal dispute with Kuwait poses a risk. SAS Group has 13 orders but is facing some financial challenges.

He is forecasting an 18% decline in business jet deliveries in fiscal 2010, which equates to 214 planes versus 262 in 2009. And unless the economic outlook suddenly improves, he anticipates a decline of as much as 20% more to 2011 deliveries.