Bombardier's Contrarian Play: Balancing Strong Backlog and Valuation Concerns

The recent downgrade of Bombardier Inc. by both equity analysts and credit rating agencies has sparked a debate about whether the stock's valuation concerns represent a contrarian opportunity or a warning signal. While the company's fundamentals remain robust—anchored by a record $16.1 billion order backlog and a strategic pivot toward high-growth sectors like private jets and defense—the market's skepticism is understandable. This article examines whether the current dislocation in Bombardier's valuation offers a compelling entry point for long-term investors willing to navigate short-term volatility.

The Downgrade: Valuation, Not Fundamentals

TD Securities' downgrade of Bombardier's stock to “Hold” from “Buy” in August 2025 was explicitly tied to valuation concerns rather than operational or industry-specific risks. The firm raised its price target to C$173.00 from C$151.00, acknowledging the stock's recent re-rating but cautioning that further multiple expansion would require stronger financial results. Similarly, Morningstar DBRS's credit rating downgrade and negative outlook highlighted risks around debt management and macroeconomic volatility, despite Bombardier's ongoing refinancing efforts.

The disconnect between these downgrades and Bombardier's operational performance is striking. The company's 2025 revenue guidance of over $9 billion and adjusted EBITDA of $1.625 billion reflects a disciplined cost structure and strong demand for its services. Its free cash flow is projected to exceed $900 million, while its net leverage ratio is expected to fall to 2.0x–2.5x, a marked improvement from post-2020 levels. These metrics suggest that Bombardier's financial health is improving, even as the market focuses on short-term valuation debates.

Valuation Metrics: A Discounted Opportunity

Bombardier's valuation appears unloved by the market. Its 2025 P/E ratio of 26.3x is significantly below the aerospace and defense peer average of 35.3x and the industry benchmark of 34.7x. The EV/EBITDA ratio of 15.8x further underscores its affordability, particularly in a sector where capital-intensive firms often trade at premiums. While the P/B ratio is less relevant due to Bombardier's negative equity, the company's enterprise value is supported by its high-margin services business and defense contracts.

The market's skepticism may stem from Bombardier's history of debt challenges and its reliance on refinancing. However, the company's recent $500 million 6.75% Senior Notes issuance—set to mature in 2033—has been positively received by Fitch, which affirmed its BBB- rating in March 2025. This refinancing reduces annual interest expenses by $5.6 million and extends debt maturities, providing a buffer against near-term liquidity risks.

Sector Tailwinds: Private Jets and Defense as Growth Engines

Bombardier's strategic focus on the private jet and defense sectors positions it to benefit from two of the most dynamic markets in aerospace. The global business jet market is projected to grow at a 7.9% CAGR through 2030, driven by rising demand from ultra-high-net-worth individuals and corporations seeking flexible, secure travel solutions. The defense aviation market, meanwhile, is expected to expand at 5.4% CAGR, fueled by geopolitical tensions and the need for advanced, multi-role aircraft.

Bombardier's order backlog of $16.1 billion as of June 30, 2025, reflects its competitive positioning in these sectors. A landmark $1.9 billion order for 50 aircraft (plus 70 options) from a new customer, coupled with growing defense contracts, underscores its ability to secure long-term revenue visibility. The company's services segment, which grew 77% since 2020, is also a key differentiator. By 2030, services could account for up to 50% of total revenues, creating a recurring revenue stream that insulates the business from cyclical demand swings.

Risks and Considerations

The primary risks for Bombardier remain macroeconomic and liquidity-related. A sharp rise in interest rates or a deterioration in credit conditions could complicate its refinancing plans, particularly with the June 13, 2025, deadline for the 2033 notes issuance. Additionally, the company's exposure to volatile markets—such as defense contracts with uncertain funding timelines—requires careful management.

However, these risks are not insurmountable. Bombardier's targeted liquidity range of $1 billion–$1.5 billion and its focus on return on invested capital (ROIC) suggest a disciplined approach to capital allocation. The company's ability to maintain stable deliveries—59 aircraft in the first half of 2025—also indicates operational resilience.

Strategic Entry Point for Long-Term Investors

For long-term investors, Bombardier's current valuation offers a compelling case. The stock's P/E and EV/EBITDA discounts relative to peers suggest the market is underestimating its growth potential in private jets and defense. While the recent downgrades highlight valid concerns, they also create a margin of safety for investors who can tolerate near-term volatility.

A strategic entry point would involve a staggered approach, buying dips in the stock price as the company executes on its 2025 targets and deleveraging plan. Investors should monitor key metrics: the success of the 2033 notes issuance, progress in reducing net leverage below 2.0x, and the pace of defense contract wins.

Conclusion

Bombardier's contrarian appeal lies in its ability to balance a strong order backlog and sector tailwinds with a discounted valuation. While the recent downgrades warrant caution, they also highlight an opportunity for investors who recognize the company's long-term potential in a surging private jet and defense market. For those with a multi-year horizon and a tolerance for volatility, Bombardier represents a strategic entry point—a blend of disciplined capital management and high-growth sector positioning that could yield significant rewards.