Bilbo Baggins can be given the following upgrade:
Veterans Required: Mithril Coat - Requires some veterans to be sent into a Dwarven Forge. Dwarven heroes will then have the ability to purchase the Mithril Mail upgrade for 500 resources. The Mithril Mail gives Dwarven heroes extreme resistance to all damage.
Bilbo has the role of a Scout. He can toggle between ranged and melee attack, which is very useful and can give him an advantage against melee hordes. Conceal can help him to hide, and I'm Going on an Adventure can help him both to escape and to deal more damage to enemies for a short time. Treasures of a Master Thief can give you quick money, which is always helpful. Overall, Bilbo is really useful as a Scout, and he can also help with your economy.