Some Hope Left for Bombardier as Aerospace Division Deteriorates

General Dynamics (GD), the parent company of Gulfstream, announced yesterday it would cut its production of mid-size business jets this year on weakened demand.

The news doesn’t bode well for Bombardier Inc. (BDRAF.PK), which may be forced to follow suit, according to Claude Proulx, BMO Capital markets analyst.

He said in a note to clients:

It reflects the unprecedented deterioration that has taken place in the business jet market in recent months. Although Bombardier business jet sales are more geographically diverse than those of Gulfstream, which is more U.S. oriented, we believe that the risk that Bombardier will also need to cut production is growing.

If it does, it would imply further downside risk to Mr. Proulx’s “market perform” rating on Bombardier and his C$4.75 a share price target.

Raymond James analyst Steve Hansen initiated coverage of the Montreal manufacturer Thursday, and placed a “market perform” rating on the stock with a C$5.50 a share price target.

He said he wouldn’t recommend buying the stock until the company gives further outlook on the aerospace market, and called shares in Bombardier “dead money” for the next six to 12 months, saying he sees no clear catalyst to drive the stock aside from a market-wide rebound.

However, Richard Stoneman, Dundee Capital Markets analyst, notes that the company’s train division stands to benefit from massive investments in infrastructure projects worldwide as part of economic stimulus packages.

He said:

This cycle, the transportation group is throwing off cash and has a record backlog. The company has over C$3.2 billion in net cash, a strong balance sheet and no debt maturities until May 2012 when C$600 million comes due.

He did, however, lower his aerospace delivery forecast for 2010 by 10% and a further 5% in 2011 yesterday and lowered his price target to C$7, down from C$8.10 a share accordingly. But, Mr. Stoneman maintained his “buy” rating on the stock, noting that firm orders for its CSeries aircraft, which the company maintains will arrive in the coming week, would represent another growth leg.

Comments

[Michael D.:]

BBD is 50% aerospace. The other 50%: Trains. Look at the order backlog, installed service base in Europe. Add infrastructure spending, and you'll see that there isn't really a soft side. Current fluctuations represent a buy opportunity.

Jan 30 11:57 AM

[Wolfgang S,:]

Dies ist wieder einmal typisch. Aufgund einer einzigen Analysten-Meinung verkaufen die kurzfristig und -sichtig denkenden Anleger und der Kurs stürzt an einem Tag um 9%. Michael D. hat recht und ausserdem bleibt
unberücksichtigt, dass BBD für 7 Jahre volle Auftragsbücher hat.

Feb 02 02:10 AM