Bombardier continues climb as RBC raises PT, sees more upside

Bombardier Inc. shares soared 3% to their highest level since 2011 after RBC Capital Markets significantly raised its price target to C$175 from C$108, citing growing confidence in the business jet manufacturer's long-term free cash flow potential and a valuation re-rating. Despite near-term EBITDA forecasts remaining slightly below consensus, RBC's full-year 2025 EBITDA and high-end free cash flow projections, coupled with a recent 50-jet order, underpin a bullish outlook. This upgrade, echoed by other firms, reflects Bombardier's strategic pivot toward higher-margin services and robust demand, with analysts suggesting the market may still underestimate the company's compounding potential despite its stock nearly doubling in the past year.

Analysis

Bombardier's (TSX:BBDb) stock surged 3% to its highest point since 2011, driven by a significant price target increase from RBC Capital Markets to C$175 from C$108. The upgrade is underpinned by a substantial re-rating of the target valuation multiple to 9.5x from 6.5x, reflecting heightened confidence in the company's long-term free cash flow (FCF) generation. While RBC's Q2 2025 EBITDA forecast of C$336 million is below the consensus of C$346 million due to margin pressure from a heavier manufacturing mix, its full-year 2025 outlook is more bullish, with an EBITDA forecast of C$1.58 billion and FCF of C$795 million, positioning it above consensus and at the high end of company guidance. This optimism is supported by a recent 50-jet order, which solidifies the outlook for a healthy business aviation market, and the company's strategic pivot towards higher-margin services. Despite the stock nearly doubling in the past year, analysts at RBC suggest the market still underestimates the compounding potential of its FCF, a sentiment echoed by more modest target hikes from TD Securities and BMO Capital.

Key Decisions for Investors

• Investors should look beyond near-term earnings, which may lag consensus, and focus on the long-term free cash flow compounding potential, which is the primary driver of RBC's significant valuation re-rating.
• Monitor the company's execution on its strategic pivot to higher-margin services and its ability to achieve its 2025 free cash flow guidance, as RBC's C$795 million forecast is a key pillar of the bullish thesis.
• Given that the stock has almost doubled in the past year and analyst expectations have been substantially raised, consider the risk that much of the positive outlook is now priced in, warranting a close watch on future order flow and margin performance to sustain momentum.