Bombardier Report

Bombardier Report

Analysis of Bombardier:

Bombardier took on its present form in 1976 when MLW-Worthington, a manufacturer of locomotives, acquired Bombardier Ltd., a manufacturer of snow tractors and snowmobiles. The company was renamed Bombardier Inc. in 1978. The company has been active ever since in the acquisitions of various aerospace and transportation companies around the world.

Nature of the Business

Bombardier conducts business in five main areas: transportation equipment, aerospace, defense, motorized consumer products, and in financial and real estate services. The total revenues increased by 20% from $5.9 billion to

$7.1 billion over the last year.

To be able to see the extent of Bombardier's operations it is best to look at each manufacturing group separately.

Aerospace

Aerospace is Bombardier's most important industry. It accounted for 47% of sales and 33% of profit in 1995 and makes Bombardier the fourth largest civilian airplane manufacturer in the world. Bombardier's customers are spread out over the globe. They range from government and private commercial airlines to wealthy individuals and corporations in need of private jets. The products that are driving the growth in this division are the RJ, the Global Express, and the Lear-45. De Havilland, which was recently purchased with help from the

Ontario government, produces the Dash-8 series of airplanes. The Dash-8 has had its production rate increased to 48 planes a year with about 81 on order.

Modified versions of the Dash-8 are in the works that could enable an even bigger increase in production. Bombardier has cut costs and increased the profit margin at de Havilland to improve profitability. Bombardier will likely exercise the option to buy the remaining 49% from the Ontario government. The outlook for the success of the RJ is very good, although most of its sales rely on a small number of companies, these companies are pleased with the RJ's performance to date. Bombardier's entrant into the long-range market is the

Global Express that has “about 60 orders” on the table, but needs 100 to break even at a price of $34 million. It is experiencing strong competition from

Gulfstream, which produces a plane that is targeted for the same market as the

Global Express. ...

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...ROE of 18.9%. This points to an overvaluation. 4) The total return of 14.25% is greater than the discount rate of 11%. This is a sign of a good buy. 5) The ROE is just over the acceptable rate of 18%. 6) The

SE/TC is .413 and is not preferred because it is under 70% 7) The P/BV of 4.98 is over the generally preferred multiple of 4x. 8) The P/CF of 17.63 is over the generally preferred multiple of 10x.

The above facts give conflicting signs of whether the stock is overvalued or not.

One fact that settle the disputing evidence is that the calculated FV from the

RGPM is $19.31 and is well under the current market price of $24.60. There is no single factor that determines whether a stock is overvalued or not, but in this case I believe that there is more evidence to support the view that the stock is overvalued. A case could be made to hold the stock if it is already owned, if the shareholder feels confident in the stock, but otherwise a recommendation not to buy or to sell is given in the best interest of the investor for the long run.