Chris Murray of AltaCorp Capital says it's "time to board a world leader in transportation."
"We believe we are at a trough point in Bombardier aerospace and the start of a (period of continuing) improvement at Bombardier transportation (rail)," he wrote in a report Friday.
Murray set a one-year price target for the Montreal-based transportation company at $5.50 per share. That's about 40 per cent above current levels and would take the issue slightly above its 52-week high set in October.
Walter Spracklin of RBC Capital Markets also upgraded his outlook and target price. The analyst raised his target price 25 per cent to $5, with an outperform rating.
He said much of the negative news about Bombardier has already been priced into the stock, while the elevated liquidity risk is abating.
"Coupled with progress on the CSeries testing program and an improving sales environment heading into (next summer's) Farnborough air show, we would be buyers of the Bombardier shares at current valuations," he wrote, pointing to Air Canada (TSX:AC.B) as a potential buyer heading into the premier air show of the year.
After previously underestimating the market's appetite for Bombardier's debt, Spracklin now says the company should be able to raise debt, including a beneficial refinancing of US$1.1 billion in debt maturing in 2016.
Bombardier's (TSX:BBD.B) shares closed up five cents at C$3.92 Friday on the Toronto Stock Exchange.
The manufacturer's earnings have been volatile for four years because of slowdowns in regional aircraft deliveries, lower business jet orders and challenges on some railway projects that reduced margins.
But Murray expects share-price increases will be driven by earnings growth, increasing confidence with the new CSeries aircraft, long-term cash flows and comfort around Bombardier's long-term prospects.
By 2015, he expects Bombardier's pre-tax operating earnings will rise 39 per cent to almost US$1.8 billion, from US$1.3 billion last year.
He forecasts that adjusted earnings will reach 50 cents per share on $21.3 billion of revenue, up from 33 cents on US$18.1 billion in 2013. For this fiscal year, he estimates 39 cents per share in adjusted profits, US$1.5 billion of EBITDA and US$19.7 billion of revenues.
Murray said the CSeries has the potential to be a main driver of earnings growth over the next decade.
Bombardier CEO Pierre Beaudoin has said the US$4.4-billion program will generate US$5 billion to US$8 billion a year in revenues at maturity and help improve overall profitability. Customers have placed 201 firm orders for the CSeries, along with options for 165 more. There are also 81 conditional orders, purchase rights and letters of intent.
Bombardier is expected to provide a full update on the CSeries at an investor day in New York next Thursday, including on the avionics system.
Meanwhile, Bombardier has addressed cost challenges caused by aircraft program delays and tough market conditions by freezing non-union salaries and permanently laying off up to 1,700 employees in its aerospace division, mostly in Montreal.
The moves are designed to offset billions of dollars spent to develop the CSeries, Learjet 85, Global 7000 and 8000, along with plant improvements.
Bombardier has delayed first deliveries of the CS100 until the second half of 2015, with the larger CS300 coming about six months later. The first flight and delivery of the Learjet 85 has also been delayed.
Its business jet segment, which accounts for 54 per cent of aerospace revenues, has also faced challenges as orders for small- and medium-sized aircraft have been hurt by the weakened economy.
Bombardier trails Gulfstream as the second-largest manufacturer of business aircraft in the world based on value, but deliveries are expected to increase as it adds new planes, including the large Global 7000 and 8000 in coming years.