Scotiabank upgrades Bombardier stock to Sector Outperform on rebounding demand

Scotiabank upgraded Bombardier Inc. to Sector Outperform and raised its price target to C$150 from C$105, citing rebounding demand, a significant new order, and persistent balance sheet deleveraging as the company "fires on all cylinders." This bullish outlook, following an investor tour and management discussions, reflects an improved free cash flow outlook and reduced cycle risk, leading to an increased EV/EBITDA multiple. Despite a recent 30% stock surge, Scotiabank believes Bombardier remains attractively valued at 8.1x/7.2x 2025/2026 estimated earnings, significantly below industry peers, indicating further upside potential.

Analysis

Scotiabank has significantly revised its outlook on Bombardier Inc. (BBD.B), upgrading the stock to Sector Outperform from Sector Perform and increasing its price target by 43% to C$150 from C$105. This bullish revision is underpinned by several factors, including rebounding demand for business jets as tariff concerns diminish. The bank's confidence was further bolstered by an investor tour and discussions with management, which revealed the company is "firing on all cylinders" following a slower first quarter, evidenced by a recent significant order win. Financially, Bombardier is demonstrating tangible progress in strengthening its balance sheet through persistent deleveraging, approaching its year-end leverage ratio targets. Consequently, Scotiabank has raised its valuation multiple for Bombardier to 8.5x EV/EBITDA from 7.0x, citing an improved free cash flow outlook and reduced cyclical risk. Despite a 30% rally over the past two months, which outpaced the TSX index's 8% gain, the stock's valuation is viewed as attractive at 8.1x 2025 and 7.2x 2026 estimated earnings, representing a significant discount to competitors trading at 14x and 12x respectively.

Key Decisions for Investors

• Investors could view the Scotiabank upgrade as a strong buy signal, based on the combination of operational momentum, balance sheet improvements, and a valuation that remains substantially below industry peers.
• Despite the stock's recent 30% appreciation, the valuation gap suggests further upside potential; investors should consider that Bombardier is trading at 7.2x 2026 estimated earnings versus a peer average of 12x.
• It is crucial to monitor future earnings reports for continued strong order intake and progress on deleveraging, as these are the key catalysts supporting the upgraded price target and higher valuation multiple.