The transportation giant is slated to report fourth quarter results on Thursday.
Stonecap analyst C. Scott Rattee forecasts aerospace unit revenues to increase 34% year-over-year to $2.7 billion, driven by an over 28% increase in aircraft deliveries.
Fourth quarter earnings before interest and taxes (EBIT) is expected to rise 27.5% to $162 million in the unit, but margin is forecast to decline 30 basis points to 6% as several aircraft development programs hit peak investment periods, the analyst notes.
Meanwhile, the transportation (BT) unit is expected to see revenue growth of 2.9% to $2.4 billion as major rolling stock programs in Europe and Asia continue to ramp up. EBIT in the unit is anticipated to decline 3.3% to $160 million, resulting in a margin decline of 40 basis points to 6.8%.
"Given the soft economic environment in Europe, budget shortfalls in many developed countries and the slow ramp up of several large-scale projects, we expect BT to back away from its 2013 EBIT guidance of 8%. We currently project a 2013 EBIT margin of 7.7%."
Rattee sees 2013 as a critical year for Bombardier, assigning the company an outperform rating and a target price of $6.00.
He anticipates the fourth quarter will be a "critical opportunity" for management to set expectations for the coming year on several fronts, including an update on the first flight of the CSeries program, commercial aircraft and business jet delivery estimates, EBIT margin performance in its aerospace unit, and the transportation segment's 2013 EBIT margin guidance of 8%.
"We think the company is in a good position to deliver on the first three points, but as noted above we do not expect management to maintain its long-term BT EBIT margin guidance.
"However, given the large discount that Bombardier is trading at versus its peers, we see the company’s valuation tied to success in its aerospace programs, in particular smooth execution in the CSeries program as key to improving sentiment on the stock," the Stonecap analyst concludes.
According to Rattee's report, Bombardier is currently trading at a 36% discount to its peers - well below the company's historical discount of 11% and average multiple of 10.8 times.
Its stock is now trading around $4.12 in Toronto.