A Bombardier high-speed trainTony Frank
These days, rail is king at train and plane maker Bombardier Inc. The Montreal-based industrial giant's rail segment continues to help offset the prolonged slump in global demand for its regional and business jets.
The outlook for Bombardier Transportation is strong and the rail unit is well positioned to take advantage of growth in emerging markets, says Fadi Chamoun, an analyst with UBS Securities Canada Inc.
On the other hand, the latest outlook from Honeywell International Inc. on business jets indicates that global demand will probably erode further before slowly beginning to bounce back in 2011.
Bombardier is well placed to win a huge £1.4-billion ($2.4-billion) contract in Britain to provide 1,100 rail carriages to Thameslink, Mr. Chamoun writes in a research note today.
Also helping boost Bombardier Transportation is its strong established base in India and China, where it already has between 20 and 25 per cent of the market, and where it is well placed as infrastructure spending ramps up, according to Mr. Chamoun.
Mr. Chamoun is maintaining his "buy" rating, as well as his 12-month $5 price target on the stock.
In China, where the government is spending massively on new track and passenger cars, Bombardier has won more than 20 per cent of the market and is in an excellent position to win new orders in coming years, he says.
In aerospace, though, things are not so positive.
According to the latest Honeywell forecast, buyers of business jets are going to remain reluctant for some time to come. The business-jet segment is a major profit generator for Bombardier.
Honeywell, an avionics and parts maker, predicts that global business-jet deliveries will fall to less than 800 units this year from 1,140 last year. That represents a 30-per-cent decline by units and a 40-per-cent slippage when calculated in dollar terms.
Next year, deliveries are predicted to edge down below 700 before beginning a slow rise over several years.
In all, the Honeywell forecast calls for delivery of 11,000 business jets over the next 10 years, for a total value of about $200-billion (U.S.).
For Versant Partners analyst Cameron Doerksen, the business-jet market for Bombardier remains a concern, but he is also heartened by the company's strong rail performance.
He recently raised his rating on Bombardier stock to neutral from sell, with a $4.90 (Canadian) 12-month target.
Bombardier shares have been on a steady rise to $5 territory from the $3.50 range six months ago on investor sentiment that the company's fundamentals are solid and profit margin targets can be attained, after efficiency and productivity gains based on cost cutting as well as large backlogs on both the train and aerospace sides.
Bertrand Marotte