Global 8000 Demand And Defense Contracts Will Strengthen Future Stability

Key Takeaways

• Solid services business and defense sector growth enhance revenue, stability, and margins, supported by strong aircraft demand and a robust backlog.
  
• Financial discipline and debt reduction improve balance sheet strength, enabling better margins and overall financial health.
  
• Geopolitical uncertainties and potential tariffs may disrupt supply chains, affect investor confidence, and pose financial challenges, impacting Bombardier's profitability and growth expectations.

Catalysts

Engages in the design, manufacture, and sale of business aircraft and aircraft structural components worldwide.

• Bombardier's solid services business, which has doubled revenue to $2 billion within four years, is expected to maintain its growth trajectory, expanding mid to high single-digit CAGR in 2025, thus contributing positively to revenue and margins.
  
• The company’s defense business, which has secured several contracts and is targeted to grow 3x to 5x, enhances revenue diversity and stability, potentially boosting revenue and earnings.
  
• Strong demand for new aircraft, including key planes like the Global 8000, and delivery backlogs with solid pricing power, provide visibility into future revenue growth and margin stability despite global uncertainties.
  
• Continued debt reduction and financial discipline has materially strengthened the balance sheet, reducing net leverage to 2.9x, which should improve net margins and overall financial health.
  
• Enhancements in product capabilities, such as the aircraft upgrades allowing enhanced speed and performance, could drive future earnings via premium pricing and increased customer satisfaction.

Bombardier Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bombardier's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 7.8% in 3 years time.
• Analysts expect earnings to reach $754.5 million (and earnings per share of $9.13) by about May 2028, up from $339.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $470 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the CA Aerospace & Defense industry at 31.7x.
• Analysts expect the number of shares outstanding to grow by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.15%, as per the Simply Wall St company report.

Bombardier Future Earnings Per Share Growth

Risks

• The uncertainty around potential tariffs could significantly impact Bombardier's ability to guide financial performance, potentially hurting revenues and net margins if tariffs were to increase costs or disrupt supply chains.
  
• A lack of clear guidance from Bombardier for 2025 due to tariff concerns may breed investor uncertainty, affecting investor confidence and potentially leading to volatility in earnings.
  
• Supply chain pressures and cost headwinds have already posed challenges and may continue to affect Bombardier's ability to deliver on time, impacting profitability and net earnings if these issues persist.
  
• Despite strong current demand, a high level of dependency on the U.S. market and potential tariffs could lead to disruptions in deliveries, thereby affecting revenue growth expectations.
  
• Although Bombardier has been improving financial leverage, the backdrop of geopolitical uncertainty and tariff threats adds risk to future debt management and could impede the company's ability to maintain a favorable leverage profile, affecting net margins and profitability.

Valuation

• The analysts have a consensus price target of CA$109.369 for Bombardier based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$137.04, and the most bearish reporting a price target of just CA$80.41.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.7 billion, earnings will come to $754.5 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 7.2%.
• Given the current share price of CA$92.95, the analyst price target of CA$109.37 is 15.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.