TSX Commentary » Bombardier Inc.

Bombardier Inc. BBD.B Plant Tour Illustrates Cost Saving Opportunities in Mexico

admin — Wed, 27 Jan 2010 17:53:27 +0000

Bombardier Inc. (BBD.B) – $5.23 – Plant Tour Illustrates Cost Saving Opportunities in Mexico
Outperform, Above Average Risk, Price Target: $6.50
RBC CM attended a site tour of three of BBD’s Aerospace and Transportation plants in central Mexico. Among a number of capabilities, the Aerospace plants specialize in electrical harnesses and structural aircraft components, while the core competency of the Transportation plant is welding. The tour demonstrated that BBD is in the early stages of a long-term cost saving opportunity, driven by: 1) lower labour costs; 2) an offset to rising C$; and 3) bringing BBD closer to Mexican and Latin American markets. While this opportunity is substantial, RBC CM believes that significant cost-savings are a few years away. Labor represents only ~10% to 15% of total costs. Factoring in the cost of sourcing supply and shipping products back for assembly, current cost savings are likely not material. Once a local supply base is established, however, the cost saving opportunity could be quite material. Management believes Mexico is a nascent market with significant growth potential. Travel in Mexico is disproportionately split toward ground transportation (95%) vs. air (5%). RBC CM expects management to raise its forecast for Transportation EBIT margins when it reports Q4/F10 results April 1. This may be a key catalyst for valuation.

BBD.B Attractive Valuation with Potential Catalysts

admin — Thu, 07 Jan 2010 18:30:31 +0000

JP Morgan Comment on Bombardier (BBD.B) – $4.86 – Attractive Valuation with Potential Catalysts: Upgrade to OW
Overweight (prev. Neutral), Price Target: $6.50
JPM is upgrading Bombardier to OW. The stock’s risk/reward profile looks attractive as it was the worst commercial aero performer in its group last year and looks inexpensive relative to both aero and transportation peers. JPM sees several
potential catalysts such as CSeries orders and continued good news from Transportation, including a new margin target with Q4 earnings.

BBD Lag Effect of Recession Provides Attractive Entry

admin — Wed, 02 Dec 2009 18:09:55 +0000

RBC CM is assuming coverage on BBD.B shares with an Outperform, Above Average risk rating and increasing its target to $6.50 (from $6). RBC CM’ view is that the worst of the economic recession is behind us – although the lag effect of the recession on aircraft deliveries continues to weigh on BBD’s valuation. However, RBC CM expects important positive catalysts to emerge in the form of: 1) a sustainable improvement in economic / corporate profitability data; 2) a pick-up in new aircraft orders; and 3) a shift in focus to F2012 estimates as we move through the down cycle expected to bottom in F2011. Finally, while Bombardier Aerospace tends to be in the spotlight, RBC CM points to the attractive stability characteristics exhibited by the company’s Transportation division and sees inherent value in that steady cash flow stream. Bombardier to report Q3/F10 tomorrow. RBC CM estimates EPS of $0.10 vs.$0.14 last year (consensus $0.09). The focus is expected to be on the aircraft division as BBD has been reducing production rates and rationalizing its cost structure accordingly.