Bombardier: Despite Signs of a Bottom, No Rush to Buy

Despite some early signs that the market for business jets has bottomed, investors should be in no rush to buy Bombardier Inc. (BDRAF.PK) with no immediate recovery in sight, according to Cameron Doerksen, Versant Partners analyst.

Mr. Doerksen said:

In our estimation, the key catalyst for any sustained upward move in Bombardier’s share price will be early signs of a rebound in the business jet market. This segment is the key driver for profitability for Bombardier – we estimate that it accounted for approximately 40% of total company operating income last year.

Bombardier, which will report its second quarter earnings on Sept. 2, delivered 50 business jets, or 25% fewer, for the three months ending July 31, compared to same period last year.

Mr. Doerksen noted that there is still a glut of used business jets on the market, which is not only slowing orders for new aircraft but dragging down pricing as well.

In addition, the business jet market historically lags a recovery in corporate profitability and the broader economy by between six and eight quarters, meaning that new orders will likely stay depressed through the remainder of this year and “probably longer” and that actual new deliveries will decline again in 2010.

Shares in Bombardier were trading at C$4.08 on the Toronto Stock Exchange Tuesday as of 10 a.m., ahead of Mr. Doerksen’s 12-month target price of C$3.90 a share.

“We believe a more compelling entry point for longer-term, value-oriented investors is in the C$3.00-$3.50 range,” he said, maintaining his “neutral” rating on the stock.