Bombardier Inc. analysts have come back from a recent trip to China with good news. A sharp slowdown in high-speed rail orders from China this year is due to temporary factors and set to reverse imminently. Bombardier's early move to manufacture in the country and use local partners and suppliers should pay off in train and plane orders as China continues to massively build out its urban infrastructure in the coming decades.
That's great for the long-term, but the cold hard reality for investors is that Bombardier remains a once mighty stock that hasn't broken the $10 mark in over a decade and has sagged to below $4 in the past year. So is there anything to get excited about other than dreams of fast trains crisscrossing the Middle Kingdom a generation from now?
Well, the company's train and business jet businesses, both global market leaders, are undervalued, says Byron Capital Markets analyst Tom Astle. Perhaps, too, there's a third big value driver, and it's sitting right under investors' noses: Bombardier's 100-plus seat transcontinental airliner, the C Series.
The C Series, which has been under development for nine years, gets zero value in analysts' calculations of the company's worth, with good reason. Industry watchers are skeptical about demand, fear competition from industry giants Boeing and Airbus will be fierce, and doubt the Montreal company's ability to actually get brand-new commercial passenger jet off the ground.
But the day is fast approaching when they can cross one of those concerns off the list. On-the-ground tests of a virtual "Airplane Zero" model are well under way, as is assembly of Bombardier's flight test aircraft at its Mirabel, Que., facility. "We're almost there and we're feeling it, but also we know that putting 100,00 parts together is a big challenge," CEO Pierre Beaudoin told ROB Insight last week.
There's so much skepticism built into the C Series story now that the low expectations could work to the advantage of shrewd investors. The stock seems poised for liftoff if Mr. Beaudoin can deliver a bird that flies, delivers operating efficiencies and brings in orders.
The goal is to get the tester in the sky by year's end and the C Series in service a year later, with 300 firm orders from 30 customers by then, up from just 138 and nine, respectively, now. Any setbacks – including an expected delay of a few months to the company's timeline – could weigh on the stock. But if the C Series program lifts off, expect some value to be created where none exists now, giving the stock some air to breathe.
Sean Silcoff