We are picking up coverage of Bombardier (BBD.B) with a narrow economic moat rating, and we see its shares as undervalued compared to our fair value estimate of $82 per share. After a storied history as a prominent Canadian industrial conglomerate, Bombardier has emerged from several divestitures as a pure-play business jet manufacturer. The company currently focuses on manufacturing and servicing its Global (long-range) and Challenger (medium to large) aircraft families.
We see the consolidation into business aircraft as a positive for Bombardier and think there is enough room for revenue growth and margin expansion in both its manufacturing operations and aftermarket services to allow it to continue paying down debt and reinvesting in its product line to compete with Gulfstream. The company has revamped its portfolio of long-range jets, where it is one of only three main players alongside Gulfstream and Dassault. Bombardier is seeing success with its flagship Global 7500, which entered into service in 2018. The Global 8000 is expected to enter service in 2025 as the fastest business jet on the market and tied for the longest range of 8,000 nautical miles. In 2022, Bombardier was responsible for 35% of deliveries in the long-range business aircraft category.
While accounting for less than one quarter of annual revenue, Bombardier’s aftermarket services contribute significantly to profit with around 20% EBITDA margins. We expect to see growth in the overall maintenance market even as flight hours for private jets reach a “new normal” after the pandemic. We also think Bombardier will increase the share of its fleet’s service revenue, with its estimated share increasing from 41% to 50% in the medium term. Overall, Bombardier is poised to benefit from its strong presence in medium-to-large and long-range business jet market.