Buy Air Canada ahead of Q3 earnings, Paradigm Capital says

Ahead of Air Canada’s (Air Canada Stock Quote, Chart TSX:AC) third quarter financials due Wednesday, analyst Corey Hammill of Paradigm Capital thinks the airline will manage a consensus beat on EBITDA, which should cause a jump in AC’s share price.

Air Canada’s stock has had an up-and-down year so far, rising 11 per cent between early January and late March but then losing all of that ground over subsequent months. It’s currently trading down nine per cent for the year.

Hammill says that based on quarterly reporting from the major US carriers, strong passenger demand and fee increases are likely to offset fuel increases for Air Canada.

“We remain upbeat in our outlook for AC and believe that a multiple expansion is more than overdue. The current spread between AC and US legacy carriers based on 2019 consensus EBITDAR estimates is two multiple points, with AC trading near 4x and US peers ~5.5x. We estimate that each one multiple point is worth ~$12/AC share. Investors should continue to watch the oil price closely, as this could have a material impact on estimates,” Hammill says.

“We expect AC is likely to beat Street EBITDA estimates, which should in turn lead to a boost to the share price,” he says. “The caveat is general market volatility.”

For the third quarter, the analyst projects revenue of $5.44 billion, representing an 11.4 per cent year-over-year growth (the consensus is $5.39 billion) and EBITDAR of $1.25 billion, representing a negative 9.7 per cent year-over-year decline (the consensus is $1.28 billion).

Hammill is maintaining his “Buy” rating and 12-month price target of $32.00, representing a projected return of 25 per cent at the time of publication.