WestJet’s share price swoon could be a buying opportunity, this investor says

WestJet’s share price (WestJet Stock Quote, Chart, News: TSX:WJA) may be heading south but that could mean a nice buying opportunity is on the runway, says portfolio manager Ryan Bushell of Newhaven Asset Management.

Bushell says that even with the air travel sector doing well at the moment, Canada’s number two airline may have to deal with a few nagging issues before investors are willing to jump back on board.

Shares of Canadian airline WestJet have fallen sharply in trading today in reaction to the company’s first quarter financial report, which showed a drop in profit from a year ago even as revenues came in higher. The company reported earnings of $37.2 million or 32 cents per diluted share, down from $46.7 million or 40 cents per diluted share over Q1/17. Revenue for the quarter was $1.19 billion, up from $1.11 billion over the same quarter last year.

WestJet saw a bump in capacity of 4.3 per cent, along with a revenue passenger miles increase of 6.5 per cent. Management put part of the blame for the lower profit on rising fuel costs, which increased 14.1 per cent compared to Q1/17.

“Even though winter 2018 brought many operational challenges, we successfully achieved record load factors and increased revenue by 6.9 per cent on a capacity increase of 4.3 per cent,” Ed Sims, WestJet President and CEO in a press release. “I want to thank every individual WestJetter for rising to the challenge through a very difficult operating quarter. Nonetheless, the quarter saw net earnings and margin decline as we continue to invest in the strategy laid out at Investor Day, in a higher fuel environment. We remain laser-focused on strategic execution to ensure we drive shareholder returns.”

Bushell claims that even though WestJet consistently posts strong financials, the company is currently dogged by issues such as a strike by its pilot’s union and the unexpected retirement of CEO Gregg Saretsky.

“[WestJet’s stock] is starting to look more attractive,” Bushell said to BNN Bloomberg Monday. “There’s obviously a lot of uncertainty swirling around the company. The pilots, the new CEO, the discount carrier and so on.”

“The company broadly runs a very clean financial ship and it always has and that’s nice to see, especially in the airline industry which has been pretty boom/bust,” he says.

After years of languishing, WestJet competitor Air Canada’s (TSX:AC) share price has been trending upwards since early 2016 when the stock sold for as low as $6.81. This March, AC hit a record high of $29.11, while WestJet’s stock has been up and down since 2016.

“I just can’t get excited about it either way, it’s kind of in the middle of its long-term trading range. If it dipped down into the high teens or even into the mid-teens, I think that’s where it looks a little more attractive, but at these prices, I’m just kind of lukewarm on it,” says Bushell.

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