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Bombardier Inc. has the potential for upside over the next 12 to 18 months if it can successfully bring its new Global 7000 business jets into service while continue to execute in its Transportation and Business Aircraft segments, according to J.P. Morgan analyst Seth Seifman.

Though he acknowledged the presence of both financial leverage and execution risks, Mr. Seifman applauded the performance of company's management over the past two and a half years. He believes it's been "quick to confront" challenges, leading him to express confidence in it moving forward.

Accordingly, the analyst raised his rating for the Canadian plane and train maker's stock to "overweight" from "neutral" in a research note released Tuesday, pointing to its "good progress."

"CEO Alain Bellemare has built a strong team and a company that missed numbers for years is delivering on its targets, despite headwinds," said Mr. Seifman. "Management has undertaken some big strategic moves at the same time. For the most part, these were imperative to save the company but they have not gotten in the way of execution and they also signal a pragmatic approach to value creation that we expect management will continue to exhibit. This is important, since strategic questions remain outstanding, including Bombardier's position in commercial aerospace and how to position the Transportation business longer term."

"As we think about catalysts over 12-18 months, we believe that bringing the Global 7000 into service and ramping production is the most important development. This program is Bombardier's chief source of cash burn right now, and it is a significant source of value going forward. Flight testing is progressing well, with one more test vehicle expected to take flight early next year, and we expect certification in late 2018, with perhaps 1-2 deliveries before year end. The goal is to build 40-50 aircraft per year and we assume Bombardier ramps by 2020. While Airbus now controls the C Series, we still see orders as potential catalysts for BBD/B."

Mr. Seifman expects the company's C Series jets to gain traction following its agreement with Airbus SE. However, he called the financial impact of that deal "very much a wild card."

"The downside is clear — zero — but if Airbus and Bombardier can sell 100 planes per year for [approximately] $30-million per copy with a 12-per-cent margin, the program would be worth $3.6-billion capitalized at 10 times, with nearly half, or 50 cents per share, for Bombardier after its additional capital contributions, which could total $700-million post-closing before Airbus participates," the analyst said. "Of course, there is an upside case as well, with Bombardier looking to capture well over half of a market where is sees demand for 300 aircraft per year.

"We see two obstacles to achieving C Series success: 1) persuading airlines to add a new type and 2) lowering production costs sufficiently to yield a solid margin. And we don't expect a tidal wave of C Series orders near term: 1) the deal has not closed, 2) the Bombardier sales team must hand off the product to Airbus, and 3) the Airbus team itself is going through a transition period."

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