What is BBD.B.TO's Intrinsic value?

Bombardier Inc (BBD.B.TO) Intrinsic Value Analysis

Executive Summary

As of May 27, 2025, Bombardier Inc's estimated intrinsic value ranges from $80.32 to $286.43 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $286.43 +219.5%
Discounted Cash Flow (5Y) $265.69 +196.3%
Dividend Discount Model (Multi-Stage) $100.06 +11.6%
Dividend Discount Model (Stable) $80.32 -10.4%
Earnings Power Value $103.44 +15.4%

Is Bombardier Inc (BBD.B.TO) undervalued or overvalued?

With the current market price at $89.66, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Bombardier Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.87 0.97
Cost of equity 7.6% 10.1%
Cost of debt 7.3% 8.4%
Tax rate 37.5% 42.1%
Debt/Equity ratio 0.85 0.85
After-tax WACC 6.2% 7.7%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $8,665 (FY12-2024) to $15,359 (FY12-2034)
  • Net profit margin expansion from 4% to 6%
  • Capital expenditures maintained at approximately 4% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $193 $23,260M 86.2%
10-Year Growth $209 $24,770M 73.3%
5-Year EBITDA $166 $20,500M 84.3%
10-Year EBITDA $212 $25,064M 73.6%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 6.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.8%
  • Long-term growth rate: 3.5%
  • Fair value: $100.06 (11.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.1% (Low) to 7.6% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $28 to $89
  • Selected fair value: $80.32 (-10.4% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $785M
Discount Rate (WACC) 7.7% - 6.2%
Enterprise Value $10,223M - $12,662M
Net Debt $3,909M
Equity Value $6,314M - $8,753M
Outstanding Shares 100M
Fair Value $63 - $88
Selected Fair Value $103.44

Key Financial Metrics

Metric Value
Market Capitalization $8968M
Enterprise Value $14336M
Trailing P/E 21.48
Forward P/E 25.53
Trailing EV/EBITDA 13.05
Current Dividend Yield 32.16%
Dividend Growth Rate (5Y) 3.73%
Debt-to-Equity Ratio 0.85

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $85.93
Discounted Cash Flow (5Y) 25% $66.42
Dividend Discount Model (Multi-Stage) 20% $20.01
Dividend Discount Model (Stable) 15% $12.05
Earnings Power Value 10% $10.34
Weighted Average 100% $194.75

Investment Conclusion

Based on our comprehensive valuation analysis, Bombardier Inc's weighted average intrinsic value is $194.75, which is approximately 117.2% above the current market price of $89.66.

Key investment considerations:

  • Strong projected earnings growth (4% to 6% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 3.73%

Given these factors, we believe Bombardier Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.