Bombardier (BBD.B) stock has surged almost 30% since April 24. What happened that made shares of the business jet maker defy the market and surge to their new 52-week high? Two events made shareholders optimistic. First is the positive first-quarter earnings on April 25, followed by Investor Day 2024 on May 1.
Bombardier’s first-quarter earnings highlights
The first quarter was comparatively weaker on the revenue and aircraft delivery front. Bombardier’s revenue fell 3% as it delivered 20 aircraft instead of 22 in the previous year’s quarter, but its aftermarket revenue surged 12.5%.
In the current market scenario, investors are prioritizing profitability and debt over revenue growth. Bombardier’s earnings before interest and tax (EBIT) margin increased to 11.1% from 9.5% a year ago despite a revenue decline. The jet maker has been growing its profit margins steadily by reducing debt and targeting medium and large aircraft.
The company’s priority of reducing its debt has helped it upgrade its credit rating. In May, Moody’s upgraded Bombardier to a B1 rating with a stable outlook. A ratings upgrade will help the business jet maker extend the US$2 billion worth of debt maturing in 2026 and 2027 to a longer term.
Bombardier’s order book
At the end of the first quarter, Bombardier’s order backlog increased by 5% to US$14.9 billion from US$14.2 billion a year ago. In a separate press release on May 1, the company revealed that NetJets was the client who placed an order for 12 mid-sized Challenger 3500 jets worth US$326.4 million in December 2023. The original agreement gives NetJets an option to order up to 232 Challenger 3500 aircraft. If NetJets exercises its options over time, the transaction could be worth more than US$6 billion based on list prices.
Beyond Challenger 3500, Bombardier is also looking to boost its order book by bringing into service the Global 8000, its next-generation large-body aircraft. The company is also targeting the Defense segment and pre-owned aircraft market to achieve its 2025 objective of US$9 billion in revenue and 150 deliveries. These segments require less investment and generate high returns.
Bombardier’s Investor Day 2024 highlights
Investor Day threw light on Bombardier’s long-term roadmap to 2030. The company showed a pragmatic picture wherein the aircraft deliveries will stagnate to 150 units a year. In such a scenario, it will focus on its existing aircraft and try to earn more from them.
The Pre-Owned program takes the used Bombardier aircraft, assesses their quality, makes repairs, and re-sells them. Beyond 2025, Bombardier might consider mergers and acquisitions in the Defense and Aftermarket space to boost growth.
In the 2020-2025 period, Bombardier’s management focus is debt reduction, and stable and positive free cash flow generation. Beyond 2025, the management will focus on return on capital creation while continuing to reduce debt. The company will look to generate higher returns for shareholders through share buyback and dividends from surplus cash. This long-term vision drove the stock to its new high.
Should you buy, sell, or hold the stock at its all-time high?
The recent uptick in the share price comes as Bombardier’s long-term roadmap defies the current macro weakness. However, short-term headwinds of economic weakness and high interest rates could pull the stock down on any macro update.
If you had purchased the stock at around $50 to $55, you could sell some stocks and book profits. However, if you are invested for the long term, Bombardier stock could give you stable double-digit compounded annual growth through 2030. You could consider buying the stock at the next dip when short-term headwinds influence the stock price.
