Interesting article from Stockhouse.ca...although I can't figure out where the author got his information with respect to BBD's PE ratio...from what I can see, the PE is around 37, and not around 25 like he intimates...anyone clarify this??
Bombardier Set to Jet in Coming Year
By Bruce Campbell - Contributing Columnist
Wednesday, February 7
TORONTO, ONT - Bombardier [T.BBD.B] stock could be flying high over the next 12 to 18
months. The company will benefit from several catalysts that could make the market sit up and
take notice.
Based in Montreal, Bombardier is an aerospace, transportation and recreational products
company, as well as one of Canada's great international success stories. It has been
announcing a spate of large contracts lately. This, along with three other major catalysts will
propel the stock to a much higher level by this time next year.
Earnings Growth
Bombardier has been showing continuing 30% earnings growth for the last several years. Quarter-over-quarter improvements in
earnings and bottom-line growth in the high 20s and low 30s is positive for the company. The price/earnings (PE) multiple is
the only negative statistic with regard to the stock. It currently trades at 25 times this year's earnings. As growth is confirmed, the
multiple will likely expand to meet the growth rate. A 30 times PE is not out of the question.
Contracts
Additional contracts should continue to be announced in both the aerospace and transportation areas. There have been three
major announcements in the transportation division in the past two weeks alone. A $625 million contract for 350 rapid transit
cars with the New York City Transit Authority is the largest. Deutsche Bahn exercised options for 26 Diesel units and
Minneapolis ordered 18 light-rail vehicles. The division has announced $815 million of orders year to date, and its backlog is
now approaching $9 billion.
Further announcements are expected later this year, including contracts with the London Underground and the Paris subway --
both of which Bombardier has a good chance of winning. On the aerospace side, SkyWest [SKYW] announced a $2 billion
order this month, Air Wisconsin's order for $2.3 billion has been finalized, and orders from Northwest Airlines [NWB] and
China are expected shortly.
Acquisitions
Bombardier is always on the lookout for acquisitions. The acquisition of Adtranz, the large European transportation company,
will likely be finalized in the next couple of months. This transaction will be challenging to integrate, but will provide a whole
host of new growth opportunities for Bombardier.
Sector Direction
There has been a perception that the commercial aviation sector has peaked. But Boeing's pronouncements of higher
production next year and the likelihood of renewed economic growth in North America in the second half of 2001 should set a
more positive tone for the sector.
There are no direct Canadian companies that can be compared to Bombardier in size and scope, but one small cap does
stand out.
Magellan Aerospace [T.MAL]
This is a small-cap aerospace company that is very cheap and interesting on its own merits. It trades at less than 10 times
earnings with growth in the mid-teens.
Bombardier is very cheap by comparison to this or any other large, international company. The downside is limited because
the stock is cheap on a fundamental basis, trading at a PE of less than its growth rate. This is not always the case for large, blue
chip growth companies. The stock should go up if any one of the above catalysts takes place. But there is a strong probability
all four of them will happen to some extent. If this does happen, fasten your seatbelt because this stock will be ready for
take-off.
Bruce Campbell is an Oakville, Ontario-based portfolio manager with more than 20 years of experience in managing stock
portfolios for various pension fund, institutional and individual investors. |
