Bombardier, Inc.

Bombardier Inc (TSX: BBD.B) is engaged in the business of manufacturing aircrafts. It designs, manufactures, markets, and provides aftermarket support for Learjet, Challenger, and Global business jets, spanning from the light to large categories.

Why Should Investors Book Profit? 

• Lower margin profile v/s Industry: In Q2 2021, the Company failed on maintaining its pace and witnessed lower performance across operating matrix against the industry, which exhibits the pressure on company.
• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 268.2 days against the industry median of 135.0 days.
• Poor Liquidity Profile: In Q2 2021, the company's current ratio was 1.35x compared to the industry median of 1.94x. While its Quick ratio was also on a lower side at 0.67x V/s 1.29x. Both these lower ratios against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Higher Leverage: The company’s total debt stands around USD 8,000 million which is pretty high. Additionally, it’s % LT Debt to Total Capital stood at 144.7% whereas industry median is of 22.4%. These factors imply higher balance sheet risks.
• Technical Indicators are suggesting potential price consolidation: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger Bands®, indicating the stock is perhaps overbought and due for a price correction or a consolidation.

Source: REFINITIV, Analysis by Kalkine Group

Valuation Methodology (Illustrative): EV to Sales

*1USD=1.26CAD

Stock recommendation

Business jet revenues during Q2 2021 soared to USD 1.5 billion, up 50% YoY, fueled by increases in both aircraft deliveries and services. However, the company witnessed lower performance across operating matrix against the industry, which exhibits the pressure on company. The company also exposed to a significant balance sheet risk due to high debt. Moreover, the technical indicator suggests that stock is perhaps overbought and due for a price correction or a consolidation. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 1.84 on August 31, 2021.

*The reference data in this report has been partly sourced from REFINITIV

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