1 Magnificent Airline Stock Down 14% to Buy and Hold Forever

This airline stock may have dropped by 14% recently, but that could be the perfect jumping-in opportunity.

Amy Legate-Wolfe ❯

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest.

Published November 27, 2024 10:30 am EST

Bombardier (TSX:BBD.B) has been through a tumultuous journey in recent years. Yet its recent dip in stock price offers a promising entry point for investors looking to hold a stock with long-term potential in the aerospace sector. Despite a decline of over 7% recently and 14% from highs, Bombardier stock’s fundamentals and growth strategies suggest it could be a stellar investment for those with a patient, forward-looking mindset.

Into earnings

In its most recent earnings report for the third quarter (Q3) of 2024, Bombardier stock delivered impressive results, with revenues reaching $2.07 billion, exceeding analysts’ expectations of $1.79 billion. That represents a robust 12% year-over-year growth, primarily driven by the strength of its services division. This saw a 28% increase in revenue to $528 million. The number of aircraft delivered was 30, which was slightly down from the previous year’s 31 due to an 18-day strike at one of its Canadian plants. Yet the resilience shown in maintaining production amid challenges speaks volumes about Bombardier stock’s operational capabilities.

The company’s strategic focus on diversifying its revenue streams is particularly appealing. Currently, its high-margin services and defence divisions make up about one-third of its revenue. However, Bombardier stock plans to expand these areas to represent nearly 50% of revenue by 2030. This pivot not only mitigates the cyclicality associated with aircraft manufacturing. Yet, it also ensures more stable and predictable income. Bombardier stock’s efforts to become less dependent on volatile business jet sales demonstrate a commitment to securing a steadier financial footing.

Where focus lies

Over the years, Bombardier has consistently worked to strengthen its financials. Its revenue for 2023 was an impressive $8 billion, reflecting a 16% increase from the previous year. Much of this success was driven by a record $1.75 billion in aftermarket business jet services revenue. Moreover, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year climbed by 32% to $1.23 billion. The company’s backlog, sitting at $14.7 billion as of September 2023, signals continued robust demand for its products and services.

Bombardier stock’s focus on debt reduction also adds to its appeal. As of 2023, the company had reduced its debt by nearly $400 million. This move not only enhances its financial stability but also positions it for future investments in innovation and expansion. With a current ratio of 1.06, Bombardier’s ability to meet short-term obligations remains solid, reflecting prudent financial management even as it continues to operate in a capital-intensive industry.

Future outlook

Looking ahead, Bombardier stock plans to deliver between 150 and 155 aircraft in 2024, a figure that underscores its optimism about market demand and its production capabilities. The company is also exploring opportunities in the defence sector, which, alongside services, is less capital-intensive but significantly more lucrative. These expansions align with global trends as governments and corporations seek advanced aerospace solutions. By tapping into these high-margin sectors, Bombardier ensures it remains competitive and relevant in an evolving market.

Despite its recent drop, Bombardier’s stock has shown remarkable growth over the past year, nearly doubling in value. This performance is indicative of investor confidence and reflects the company’s ability to navigate challenging market conditions successfully. Bombardier stock’s trailing price-to-earnings (P/E) ratio of 17.36 and forward P/E of 11.48 suggest that Bombardier is currently undervalued.

Bottom line

Bombardier stock’s recent price dip should be seen as a buying opportunity rather than a red flag. The stock has a solid track record of financial performance, a strategic pivot towards high-margin sectors, and a robust outlook supported by institutional and analyst confidence. Thus, Bombardier stock is well-poised to be a strong airline stock to buy now and hold forever. For investors seeking exposure to the aerospace industry’s long-term growth, Bombardier offers a compelling mix of value, growth, and innovation.