Bombardier (OTCQX:BDRBF) is a popular Canadian aerospace and transportation company that has been considered as a potential turnaround play in the making. The stock only trades at $1.12 after free falling over -90% since the recession in 2008 and announced that it will be implementing a reverse share split that will put the stock up above $10 out of penny stock territory. The Quebec government recently bailed out Bombardier with a $1 billion investment who would otherwise go bankrupt. Value investors looking for cheap stocks should avoid Bombardier because of the high risk of bankruptcy and abysmal balance sheet.
Abysmal Q4 2015 results and weak outlook going into 2016
Bombardier completely missed Q4 2015 estimates as revenue decreased 16% from the same period last year to $5 billion which was $500 million short of analyst expectations of $5.5 billion. The EPS reported was $0 which was lower than the $0.02 EPS analyst expectation. Order backlogs are weak as well as the business aircraft division was decreased by 28% and the commercial aircraft division decreased by 8%. The CSeries model planes were to be the aircraft that would get Bombardier out of the gutter, but there were so many delays over the years that everyone including the customers got sick of it and lost interest in the project. This can be seen in the decreased pre-orders for the CSeries which is at around 240 which is much lower than the 300 that Bombardier expected it would have by now. Bombardier has been actively pushing airlines like United Airlines (NYSE:UAL) and Delta (NYSE:DAL) to pre-order but Boeing (NYSE:BA) seems to be getting all the business. Bombardier has a horrid balance sheet with over $6 billion in debt which is absurd for a company with just a $3 billion market cap. Bombardier has very ugly usage of its free cash flow, $1.8 billion was wasted last year with no solid profits to show for it and going into 2016 Bombardier can be expected to go through the $1 billion that the Quebec government gave them for a 49% stake in the CSeries project. If the CSeries line of aircraft fail then there will be no return on the Quebec tax payer's hard earned money.
Is there any potential for a turnaround?
While this article is mostly focusing on the huge negative side of Bombardier, there is a slim chance that Bombardier can dig themselves out of the deep hole that they have dug themselves in. Bombardier announced that they would be cutting 7,000 jobs which has caused the stock to rally a fair amount by +45% in just two weeks. Bombardier received a letter of intent from Air Canada (OTCQX:ACDVF) for the 45 CS300 aircraft for an option of at least 30. If Bombardier can stop delaying production of the craft and actually deliver for once then we could see a very large rally in Bombardier's stock. Bombardier is pretty much a penny stock and investors who want to gamble on Bombardier are free to do so as the stock could soar if the company gets their act together but there is also a very high chance that the company can go bankrupt because of its horrible financials and all investors will lose everything. I would recommend staying away from Bombardier at this point, but if you want to take a gamble then caution would be my advice to you because the CSeries has potential to ultimately fail if the delays keep happening going forward.
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