JPMorgan Analyst Downgrades Bombardier

The recent run-up in the share price of Bombardier Inc. (BDRAF.PK) already has it reflecting most of the potential upside, according to Joseph Nadol, J.P. Morgan analyst, who downgraded the stock from “overweight” to “neutral” Monday.

The Montreal plane and train maker does stand to benefit from its improved aerospace margins, its stronger cash flow and de-leveraging, and from the likely launch of the CSeries this summer, Mr. Nadol says.

He added:

However, although we believe that good news is still likely ahead on these fundamental issues, most of the good news appears priced in.

He also notes that there are early signs that the aerospace market is cooling, as carriers around the globe park their regional fleets and scale back capacity in the face of sky-high oil prices.

Orders for Bombardier’s 50-seat and 75-seat regional jets may be “drying up,”  and the “tepid” response to its 100-seat CRJ1000, for which Bombardier has only 39 orders, perhaps indicates that “the plane is not what the market needs or wants,” he said.

While business jet orders remain as strong as their pricing, Mr. Nadol also cautioned that there is a risk that if Bombardier goes ahead with the launch of its 110-to-130 seat CSeries this summer that Boeing (BA), Airbus, and even Embraer might release competitive planes with “leap ahead technology” within the next decade.

He said:

We do not expect an announcement from any of them this year or anytime soon. But we do believe that Embraer would respond well before the CSeries went into production, and Boeing and Airbus will eventually launch narrow-body replacement programs that could overlap with the CSeries.