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The market seemed underwhelmed by the solid earnings posted by Bombardier Inc. (TSE:BBD.B) recently. We have done some analysis, and found some encouraging factors that we believe the shareholders should consider.
Our free stock report includes 3 warning signs investors should be aware of before investing in Bombardier. Read for free now.
How Do Unusual Items Influence Profit?
For anyone who wants to understand Bombardier's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$188m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Bombardier doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
An Unusual Tax Situation
Having already discussed the impact of the unusual items, we should also note that Bombardier received a tax benefit of US$97m. This is of course a bit out of the ordinary, given it is more common for companies to be paying tax than receiving tax benefits! We're sure the company was pleased with its tax benefit. However, our data indicates that tax benefits can temporarily boost statutory profit in the year it is booked, but subsequently profit may fall back. In the likely event the tax benefit is not repeated, we'd expect to see its statutory profit levels drop, at least in the absence of strong growth.
Our Take On Bombardier's Profit Performance
In the last year Bombardier received a tax benefit, which boosted its profit in a way that might not be much more sustainable than turning prime farmland into gas fields. Having said that, it also had a unusual item reducing its profit. Based on these factors, it's hard to tell if Bombardier's profits are a reasonable reflection of its underlying profitability. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example, Bombardier has 3 warning signs (and 2 which shouldn't be ignored) we think you should know about.