Analyst downgrades, then upgrades, Bombardier within the space of one day

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Canaccord Genuity analyst David Tyerman has turned tail on his bearish call on Bombardier Inc. earlier this week.

On Monday, Mr. Tyerman cut his rating on the beleaguered stock to "sell" from "hold" and slashed his one-year price target on the company's subordinated voting Class B shares to $1.10 from $1.35. He made the move on the heels of a poor quarterly report last week and the company's announcement it was taking a $1-billion (U.S.) injection from the Quebec government to help complete its delayed, overbudget C Series airliner development program. Furthermore, Mr. Tyerman said if the federal government were to match Quebec's investment, his stock target would drop to just 60 cents (Canadian).

On Tuesday, Mr. Tyerman grounded his previous call. His new target has soared to $1.40, with a restored, turbulence-free rating of "hold." He's still got a downside target on the stock should Canada invest, but it is now $1.20, not 60 cents. Either way, it's a pretty feeble call for the one-time high-flying stock that has lost two-thirds of its value this year.

The reason for his change of course? Mr. Tyerman credits a "revised view of how a possible Canadian federal government investment in the C Series could play out," apparently based on subsequent discussions with Bombardier. The analyst's previously published view was that if Canada matched Quebec, the two governments would own a combined 99 per cent of the airliner project, leaving just 1 per cent of the economics of the plane for existing investors to share, and missing out on most of the upside if the poor selling plane actually becomes popular. That was based on Quebec securing 49.5 per cent ownership of the C Series program as part of its investment.

But Mr. Tyerman's revised view is that the company "will retain more of the C Series economics than in our previous target," or a one-third economic interest even if Canada were to put in a full $1-billion. He added Bombardier's economic interest in the C Series will vary depending on how much Bombardier invests in the program. We still don't know what the incoming Liberal government will do; news to follow after prime-minister-designate Justin Trudeau's cabinet is sworn in on Wednesday.