Bombardier (TSX: BBD.B) Stock: Is it Worth the Risk?

Bombardier, Inc. (TSE:BBD.B) is drowning in US$8.7 billion worth of debt, which is expected to grow even larger as the Company continues to spend $750 million more for its CSeries project

Smallcappower: Bombardier, Inc. (TSX: BBD.B) stock is now down substantially from its peak earlier this year. The stock is starting to gather negative momentum again because investors are starting to realize the potential reward may not be worth it after all. There are a lot of issues right now, and I don’t think the stock is investable until the management team starts showing signs of improvement.

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The company is drowning in US$8.7 billion worth of debt, which is expected to grow even larger as the company continues to spend $750 million more for its CSeries project. Given that the management team is incapable of estimating a budget, the actual amount of spending on the CSeries could be much higher than the $750 million.

I don’t know about you, but I don’t want to own shares of a company that is burning through loads of cash. The government is starting to put its foot down regarding the loans it gives to Bombardier because many experts believe that a loan to Bombardier is a “waste.”

Bombardier just can’t meet its deadlines, and that’s going to scare away a large chunk of potential clients. Prospective clients already know that many of Bombardier’s previous clients have walked away from deals because of the endless delays. The management team seems to think there will be more than enough clients making orders over the next few years, but what good is that if they can’t actually deliver them?

The company’s reputation has taken a huge hit, and it’s going to take a ton of successful deliveries to repair it.

If Bombardier is going to turn around, then the management team has got to get their act together. There’s little room for error at this point, as the government won’t be throwing huge amounts of cash at Bombardier going forward. Bombardier’s initial request was for a $1.3 billion loan, and that was greatly reduced to $372.5 million. Even this reduced loan was controversial, as many experts, including the federal director of the Canadian Taxpayers Federation, were against giving Bombardier any amount of money.

The management team needs to use its remaining cash efficiently if it’s going to get the CSeries project flying; otherwise, the stock could be headed further into the abyss. Sure, there may be more orders on the way, but can Bombardier actually hold up its end of the deal? If it can, the stock will skyrocket. If it can’t, expect much more downside.



Financial Analysis

Bombardier reported revenues of $3,576 for the three months ended March 31, 2017, a 9% decrease from the same period last year. Decreased revenues reflected a 23% decreased in business aircraft revenues, a 12% decrease in commercial aircraft revenues, and a 17% decrease in aerostructures and engineering services revenues. The declines were driven by an unfavourable mix of aircraft deliveries and less sales of pre-owned aircraft, fewer deliveries of regional jets, and lower volume for regional and business aircraft, respectively. Net loss per share decreased 80% to 0.02, due primarily to a special items decrease of 69% and a 15% decrease in R&D expense.

Bombardier has a relatively weak balance sheet, reflected by their poor liquidity and aggressive leverage. The Company has a 0.48 quick ratio and 1.12 current ratio, suggesting they may have trouble meeting current obligations, especially due to the fact they only sell half of their inventory every year. Furthermore, Bombardier is highly levered compared to the industry as they have a 168% debt to total capital ratio, and a net debt to EBITDA ratio of 29x, compared to the industry median of 26% and 7x, respectively. This suggests Bombardier may have trouble meeting long-term obligations.

