RBC Analyst Cuts Target for Bombardier Inc.

Bombardier Inc.'s (BDRAF.PK) admission that demand for its aerospace products will be hurt by the ongoing credit crisis, knocked the already declining stock back another notch on Tuesday. It also gave RBC Capital analyst Nick Morton pause for thought, resulting in a price target cut on the company.

Following Bombardier's talk at the National Business Aviation Association convention, Mr. Morton wrote in a note to clients:

The tone of Bombardier's presentation was cautious. Bombardier is well aware of the financial crisis and expects some impact on new orders. For the first half of fiscal 2009, the biz-jet book to bill was 1.8:1 and we expect this to decline closer to 1:1 over the next several quarters.

The analyst said that while Bombardier acknowledged the current economic crisis as a global one that would affect demand, it also said it can make it through a one or even two year slowdown should it occur.

According to Mr. Morton's note, the company addressed its two year business jet backlog, saying it has reviewed each order and expects a low likelihood of significant cancellations to arise.    

The analyst lowered his price target from C$11 to C$9 but left his "outperform" rating unchanged. He said that Bombardier’s share price has held up well relative to the rest of the group. over the six months and remains, despite the very recent downturn, up 6% year-to-date. In comparison, Mr. Morton noted that Boeing (BA) is down 43% since January, and Embraer (ERJ) is down 54%.

Mr. Morton added that the Aerospace sector has seen its share multiples drop significantly over the past six months, falling from 11x 2009E EPS and 6x 2009E EBITDA to 7x 2009E EPS and 4x 2009E EBITDA. Bombardier, he told clients, trading at 12x 2009E EPS and 6x 2009E EBITDA a half a year ago, now trades in line with its peers at 7x 2009E EPS and 4x 2009E EBITDA.