Paige Ellis

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It was described by Bombardier Inc. as a “winning” partnership. By giving Airbus a controlling stake in its CSeries program, the Quebec-based plane and train maker could access its rival’s vast sales network, and sidestep hefty tariffs being threatened by the United States.  

But Dan Fong, an analyst at Veritas Investment Research, didn’t share Bombardier’s sunny view. He believed Bombardier gave up too much to Airbus in the transaction.

In Oct. 2017, just days after the Airbus-Bombardier joint venture was announced, Fong cut his rating on Bombardier’s stock to sell from buy, according to data compiled by Bloomberg. He maintained that rating until the following February.

That’s the last time an analyst issued a sell rating on Bombardier. Since Fong’s initial downgrade, the stock has shed more than half of its value. And yet, analysts who cover the stock have overwhelmingly advised clients to buy shares.

“Analysts’ sentiment has been an almost-perfectly contrarian indicator for [Bombardier] shares over the last fifteen years,” said Brian Madden, a Toronto-based portfolio manager and senior vice-president at Goodreid Investment Counsel, in an email to BNN Bloomberg. Madden said it has been about two decades since he last owned the stock.

“Sell is a four-letter word,” he added. “Many on the buy side have come to interpret hold as actually meaning sell.”

Norman Levine, the managing director of Portfolio Management Corp., similarly said analysts’ recommendations should not be taken at face value.

“Sell should mean sell if you already own a stock, or [it means] short it. But the Street is afraid to say that,” he wrote in an email to BNN Bloomberg. “If an analyst puts a sell rating on a stock, many companies stop communicating with that analyst and its firm.”

Levine has never held shares of Bombardier.
 

AltaCorp Capital’s Chris Murray was the most-recent analyst to downgrade the stock, rating it a hold.

Days after the plane and train maker revealed its upcoming fourth-quarter and full-year 2019 results will miss its own expectations, Murray warned the company may not have enough liquidity to support its operations.

“There now exists real questions about the long-term prospects of the firm and of management,” he wrote.

In the wake of the profit warning, and the stock’s 31 per cent one-day plunge, three analysts downgraded their ratings on Bombardier to hold from buy, including Murray.

“It’s risky to recommend a sell on something that many consider has the implicit backing of the province of Quebec and the country of Canada,” wrote Madden. “Many feel [Bombardier] is too big for Quebec to allow to fail.”

He also argued analysts may suffer from too-long memories, and are “mentally anchored” to the boom days of the 1990s and early 2000s, when Bombardier’s stock traded as high as $26 per share.

Bombardier now trades around $1.30, and came within 11 cents of slipping into penny-stock territory last week.