Canadian aerospace and transportation giant Bombardier is counting on the sales of its CSeries business jets to spur its growth. In September we reported on the new jet’s first successful test flight: click here to see the article. Here is our latest report on Bombardier’s progress from The Successful Investor.
BOMBARDIER INC. (Toronto symbols BBD.A $4.62 and BBD.B $4.57; www.bombardier.com) recently began test flights of its CSeries jet, which seats 100 to 150 passengers. The new CSeries is quieter and 20% more fuel efficient than comparable aircraft.
The company now expects the CSeries’ development costs to total $3.9 billion, up 14.7% from its original 2008 estimate of $3.4 billion (all amounts in U.S. dollars unless otherwise stated). That’s because new accounting rules, which took effect in 2011, have forced Bombardier to include interest costs in the overall estimate.
Bombardier now has firm orders for 177 CSeries jets, plus options for 226 more. If the buyers exercise all these options, the resulting 403 orders would be worth $29 billion. The company aims to begin delivering the planes by the end of 2014.
Meanwhile, Bombardier earned $165 million before one-time items in the three months ended September 30, 2013. That’s down 4.6% from $173 million a year earlier. Earnings per share were unchanged at $0.09.
Canadian stock market: Bombardier backlog almost evenly split between aerospace and transportation divisions
Revenue fell 3.6%, to $4.1 billion from $4.2 billion. Revenue at the transportation division (51% of the total), which makes passenger railcars, rose 5.9% thanks to new contracts in Europe and South America. However, revenue from the aerospace business (49%) fell 11.8% because it delivered 45 aircraft in the latest quarter, compared to 57 a year earlier.
The company’s order backlog now stands at $65.5 billion, or about 3.9 years of sales. Aerospace accounts for $32.9 billion of the backlog, and transportation for $32.6 billion.
The $0.10 (Canadian) dividend yields 2.2% for the class A voting shares; the $0.102 (Canadian) dividend paid on the class B subordinate voting shares also yields 2.2%.
The cheaper class B shares are the better choice because of their slightly better liquidity and higher dividend.
Concerns that Bombardier will miss its target date to begin delivering the CSeries have weighed on the stock.
In the latest edition of The Successful Investor, we look at Bombardier’s existing businesses and their capacity to generate earnings as the company strives to meet its target dates with the CSeries jets. We conclude with our clear buy-sell-hold advice on the stock.
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Companies sometimes base a large part of their future growth on a project still in the works, like Bombardier’s CSeries jet, or a mine not yet in production. Are you willing to hold stocks like these? Do you have any examples of stocks that paid off nicely when you did so? Did you ever sell a stock because you became impatient with delays or failed promises? Did that turn out to be the right decision?
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