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Investing.com -- UBS raised Bombardier (OTC:BDRBF) to Neutral from Sell in a note Monday, citing strong services growth, disciplined production targets, and improved free cash flow (FCF) visibility.
The firm raised its price target to C$95 from C$77, reflecting balance sheet improvements and reduced downside risk.
“New aircraft bookings have held up better than we expected,” UBS analysts noted, adding that Bombardier has committed to a flat production outlook through the end of the decade to avoid oversupplying the market.
Backlog levels have remained resilient, with a modest 3% decline since 2022 and a 1.0x book-to-bill ratio in 2024, despite the company’s target of 150 deliveries per year.
UBS sees Bombardier’s approach as mitigating risk in an industry where competitors may oversupply the market, even though end-market pressures remain.
The bank now expects peak delivery and margin levels to shift to 2026 rather than earlier estimates. While it forecasts 2025/26 margins at 16.5%, below consensus estimates of 17.1-17.4%, it acknowledges that growth in services and defense helps limit downside risks.
Another key factor behind UBS’s upgrade is Bombardier’s deleveraging progress. The company’s $400 million one-time settlement from Honeywell (NASDAQ:HON) helped offset concerns about advance payments, ensuring a smoother cash flow outlook.
“We underestimated the torque delevering would have on the equity value and the services contribution to normalized EBITDA,” UBS stated. Bombardier ended 2024 at 2.9x net leverage, and UBS expects this to continue declining despite modeling 2026 as a peak-cycle EBITDA year.
While tariff risks could create near-term volatility in orders, UBS sees limited medium-term impact. The bank maintains some caution over the business jet cycle but believes Bombardier’s balance sheet improvement warrants a higher multiple.
