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Bombardier CRJ Facility, Mirabel, Quebec. (Handout)
Bombardier CRJ Facility, Mirabel, Quebec. (Handout)

Eye on Equities

Bombardier now trading like its 2008 all over again: NBF Add to ...

Bombardier Inc. shares have gone into a tailspin since midsummer, losing almost half their value as worrying signs emerged that the global economy is in fragile shape.

The plunge has been so severe that the stock is now pricing in an economic downturn of the magnitude of the Great Recession of 2008-09, according to the calculations of National Bank Financial analyst Cameron Doerksen.

And that may mean - unless you’re a pessimist believing in the worst-case economic scenarios - Bombardier shares are currently offering attractive value.

The stock is trading at 9.0 times the earnings of the last recession, and Mr. Doerksen estimates the market is currently valuing the highly economically sensitive Aerospace division at only 2.6 times forecasted earnings before interest, taxes, depreciation and amortization.

“The recent trading in the stock is very reminiscent of the 2008-09 timeframe, which leads us to conclude that the market expects similar end market conditions to occur,” he said in a research note today. “Unlike in 2008, however, Bombardier is not seeing significant business jet order cancellations while deliveries of its highest-margin Global series of jets is actually on the rise. In addition, the C Series program is on firmer ground while Transportation is more profitable and has a larger backlog than in 2008-09.”

Mr. Doerksen based his comments on a series of meetings last week between National Bank and Bombardier. Among the findings: the greater-than-usual negative free cash flow in the second quarter should only be a short-term issue; the company has seen no slowdown in high-end business jet orders; and management is satisfied with C Series orders to date and delivery positions are effectively sold out into 2016 - although it still expects a few more orders.

“We do not believe that market conditions for the company are or will be as challenging as the last downturn. Although there is potentially more downside for the stock if the broader market continues its downward trend, we believe that value-oriented investors will be rewarded over the longer term,” he said.

Upside: Mr. Doerksen maintained an “outperform” rating and $6.50 price target on Bombardier.

Canaccord Genuity analyst John Gerdes has upgraded Forest Oil Corp. to a “buy,” noting that shares have significantly underperformed peers this year. “We believe value expectations have been sufficiently reset as we feel the stock now offers about 40 per cent greater equity value upside potential than the group,” he said.

Upside: Mr. Gerdes lowered his price target by $8 to $22 due to last month’s spinoff of Lone Pine Resources Inc., the company’s Canadian business.

The nearly 30-per-cent decline in share price of Baytex Energy Corp. since early May “represents an attractive buying opportunity” given its high-quality heavy oil assets, strong balance sheet and attractive dividend yield, said Desjardins Securities Inc. analyst Allan Stepa. He believes the company’s active hedging program will stabilize cash flows and minimize risks to its capital spending program and dividend should commodity prices continue to sell off.

Upside: Mr. Stepa upgraded Baytex to a “buy” from a “hold” and maintained a $56 price target.

Birchcliff Energy Ltd. has initiated a formal sale process for the company, consistent with its strategy of growing the company and selling when the time is right, noted Raymond James Ltd. analyst Luc Mageau.

Upside: Mr. Mageau revised his valuation of Birchcliff to reflect his estimate for net asset value, resulting in an increase to his target from to $14.50 from $10.75.

CAE Inc. may be in store for some turbulence, warns RBC Securities Inc. analyst Steve Arthur. “We view CAE Inc. as a well-run global industry leader of simulation products and services, but one that faces mounting near-term uncertainty around the extent of military spending cutbacks and a slowing global economy (impacting global air travel),” he said. History shows share price reaction can be sharp on slowing macro economic conditions; the stock plunged 50 per cent in 2009 when aircraft deliveries fell 5 per cent, he noted.

Upside: Mr. Arthur initiated coverage with a “sector perform- above average risk” rating and $11 price target.

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