Turbulent times still ahead for Bombardier

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Bombardier Inc. faces fairly low expectations when it reports third-quarter earnings on Wednesday. That could play to the company's advantage, particularly if it has any surprisingly good news to deliver.

According to Bloomberg, analysts on average expect the company to earn 10.5 cents per share in the quarter ended Sept. 30, down half a cent from the same period a year ago. Analyst previews of the quarter indicate they find little to be excited about.

Many expect the Montreal-based company to announce it is delaying into 2013 the first flight of its showcase 100-seat transcontinental airliner, the C Series; it had originally promised that would happen by the end of this year. Expectations are now so heavily weighted toward a delay that the only question is how late in 2013 the inaugural flight will happen.

In addition, analysts expect underwhelming results from both of Bombardier's plane- and train-manufacturing divisions. UBS analyst Hilda Maraachlian estimates the company delivered 55 aircraft in the quarter, down 19 per cent from a year ago, and figures the company would have to deliver 63 business jets in the fourth quarter to make its target of 180 jets for the year. But that pace would be equal to the precredit crisis peak of the cycle, a far cry from present conditions.

Meanwhile, RBC Dominion Securities analyst Walter Spracklin expects the train-making Transportation division to to "once again … underwhelm," as Bombardier recovers from a drop in orders from China. Chief executive Pierre Beaudoin has chalked that up to a temporary lull as the company shifts production from a stainless steel, high-speed intracity train to a new aluminum model. As a result, Mr. Spracklin said, this quarter "will continue to highlight past challenges" in the division, while future quarters "will drive normalized divisional results."

But there are reasons for investors to be optimistic. For one, National Bank Financial analyst Cameron Doerksen notes that Bombardier is in the running for two major plane orders – for 70 regional jets from Delta Airlines and 50 turboprop airliners from Indonesia's Garuda – while it is well positioned to win a massive order for passenger rail cars from South Africa that could be worth as much as $14-billion (U.S.), although competition is stiff. Meanwhile, Mr. Spracklin noted Bombardier is trading at a discount in excess of 45 per cent to its peers. That alone means "the near-term potential upside [is] substantial," he wrote in a note.