Bombardier Stalls, But Less Badly than Expected

It has become a trend for analysts to be impressed by companies that perform less badly than expected, and Bombardier Inc.'s (BDRAF.PK) first-quarter results yesterday are no exception.

UBS and Desjardins analysts said Bombardier's performance was "satisfactory" and "in line with expectations" despite the struggling Montreal-based transport manufacturer reporting a 31% drop in earnings and zero orders for turboprops or regional jets.

"We continue to believe that Bombardier shares represent attractive value for long-term investors and that the stock is poised for significant upside once signs of an aerospace recovery emerge," Desjardins transportation analyst Benoit Poirier said in a note Thursday. "Aerospace margins are not as bad as they appear."

Overall gross margins for the company dropped to 17.3, falling just short of Desjardins' expected 18.9, however Bombardier's aerospace division did deliver 75 planes, better than the expected 64.

And while bombardier reported 61 cancellations in the quarter, Mr. Poirier suggests the first quarter of 2010 might be the "bottom" of booking activity in this cycle.

"Net orders should improve going forward, given improving financing conditions for customers and evidence from competitors that the worst seems to be over," he said.

UBS analyst Fadi Chamoun is encouraged by Bombardier's transportation division, noting the company picked up about C$1.2-billion worth of new contracts just after the end of the quarter.

"Demand remains robust," he said, noting management is seeing progress on three "potentially sizeable contracts" in Canada and Russia.

Bombardier won a streetcar contract with the Toronto Transit Commission in April worth C$1.2-billion.

Mr. Chamoun also described Bombardier Aerospace results as "better than expected" as revenues of C$2.2-billion were higher than his C$2.1-billion forecast.

Both analysts have maintained their Buy ratings on the stock, with Mr. Poirier pegging the one-year target at C$6 per share while Mr. Chamoun holds a more conservative C$5.

Comments

[Trane250:]

Bombardier may be a prime beneficiary of the "stimulus" package rail component. They are the closest to the USA manufacturer of railroad passenger cars, subway cars, light rail vehicles, trolleys and integrated train sets. The last US based full component manufacturers (Pullman Standard and the Budd Company) ceased production by the mid 80's.

Jun 05 10:45 AM

[Argle Bargle:]

I made the classic error of holding this stock through and after the period when they gave up their financial and recreation equipment divisions. With most of the stock owned by the family, I guess they didn't mind when it tanked. Maybe they did. I keep hoping train contracts will bring it back to life, but I should probably just admit (one of) my mistakes and take the loss.

Jun 05 08:20 PM