Is Bombardier's Transportation Division Ready to Leave the Nest?

The time has come for Bombardier Inc.'s (BDRAF.PK) transportation division to go it alone, says RBC Capital analyst Nick Morton.

"We feel transportation would make a great standalone company," the analyst wrote in a research note, citing the company's record high $32-billion backlog, huge cash flow and strong operating margins.

Based on a sum-of-the-parts analysis, he said he estimates that Transportation is worth about $5.4-billion today, and would be worth $7.3-billion one year from now, using a discounted cash flow model.

He told clients that now is the perfect time to unlock the value in the division, and pointed to several recent corporate actions as signs that something may be in the works.

He wrote:

We believe the early retirement of $1-billion of debt; the repurchase in November of Power Corporation's interest in rail equipment joint ventures in China; and reports of talks with the Russian firm Transmashholding are potentially related.

The analyst said that Bombardier Transportation could go public either as a standalone company or as a combination with Transmashholding, or with a transportation division of Alstom (AOMFF.PK) or Siemens (SI).

With the division equipped with its own head office, executive team, factories and products, Mr. Morton added, "transportation is set to leave the nest."