Monday, March 4, 2013

Bombardier Inc

On my other blog I am today writing about the Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO)...continue...

I own this stock of Bombardier Inc. (TSX-BBD.B, OTC-BDRAF). I bought this company in 1987. One of my problems is that I comparatively paid very little for this stock and if I sold almost all I get would be taxed as capital gain. This is one reason why I have not sold it. Another reason is that I have felt it will recover. When it will recover is a big question. You got to wonder how well it can do in the near term in light of our current economic situation.

If I look at my return since 1987, I have made a total return of 12.64% per year with 8.06% from capital gains and 4.58% from dividends. Over the past 5 years my total return is a negative 1.5% per year and over the past 10 years my return is a negative 0.7% per year. I do not think that anyone has made money on this stock recently. This is certainly true if you bought this stock as a long term investment.

This stock reports in US$. It has done better in US$ terms than in CDN$ terms. However, it has not done well in growing revenue or cash flow. They have done much better in growing earnings. Also, comparing 5 year running averages over the past 5 years, it has also done better than just comparing values 5 and 10 years ago to current values.

The Return on Equity looks ridiculously high because of the high debt load this company has. However, it would seem that it is typical for this industry. For this stock it is probably better to look at Return on Assets (ROA) and this looks a little low at 2.3% with a 5 year median better at 3.3%.

Debt Ratios are not great with both the Liquidity Ratio at 1.07 and the Debt Ratios at 1.06 being rather low. The Leverage and Debt/Equity Ratios are quite high at 26.21 and 24.81 respectively. However, they are down considerably from last year's highs.

As far as insider trading is concerned, there is not much with no insider buying and only $1M in insider selling. The Bombardier family controls this company through the use of different classes of stock. They do have a lot of money tied up in the company.

The 5 year low, median and high median Price/Earnings Ratios are 7.45, 11.34 and 14.49. The current P/E ratio is 9.22 based on a stock price of $4.05 CDN$ and earnings for 2013 of $0.44 CDN$. The 10 year low, median and high median Price/Graham Price Ratios are 1.09, 1.68 and 2.09. The current P/GP Ratio is 1.69.

There is no sense in looking at book value as the book value dropped significantly with the changing of the account rules of IFRS so I cannot get a good comparison. The 5 year median dividend yield is 1.92% and the current dividend yield 2.47% a value some 29% higher. On these tests the stock price would appear to be reasonable.

When you look at analysts' recommendations, I find Strong Buy, Buy, Hold and Underperform. However, the recommendations are towards to buy side and the consensus would be a Strong Buy. The consensus 12 month stock price is $4.93 and this implies total return of 24.2%, with 2.47% from dividends and 21.73% from capital gains.

The problem I have with Bombardier is that I paid so little for this stock that the value of the stock is almost all capital gain. If I sell, I would get hit with a very big tax bill. I also expect the company to recover. However, this will take time as we are still in the secular bear market started in 2000. We are also still affected by the recession that started in 2008.

I am holding on to my stock because I believe that the company will recover. If I thought it would not recover, I would sell it. However, I am not yet tempted to buy any more.

Bombardier is a world-leading manufacturer of innovative transportation solutions, from commercial aircraft and business jets to rail transportation equipment, systems and services. Headquartered in Montreal, Canada, Bombardier has a presence in more than 60 countries. Its web site is here Bombardier. See my spreadsheet at bbd.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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