Following the company’s annual investor day, Paradigm Capital analyst Corey Hammill is still lukewarm on WestJet (WestJet Stock Quote, Chart TSX:WJA), though the analyst says skies could clear for the company in the longer term.
In a research note to clients today, Hammill maintained his “Hold” rating and one-year price target of $16.00 on WestJet, implying a return of negative 18 per cent at the time of publication.
The analyst says moves WestJet is undertaking now could drive share price appreciation after 2020, but for now the stock is a pass.
“WestJet is at the front end of a material expansion of its business, Hammill explains. “The next 2–3 years should be characterized by ongoing growth of its ultra-low-cost carrier Swoop and the rollout of the new Boeing 787 widebody transatlantic service. We are seeing near-term volatility owing to the heavy load of initiatives underway and the continuing uncertainty regarding labour disputes. On a more positive note, the recent decline in jet fuel prices should act as a tailwind heading into Q4. As we saw with Air Canada and the launch of rouge and its international expansion, these long-haul seats are typically dilutive to unit revenue although still accretive to overall profitability — we are seeing a similar trend at WJA. We believe near-term upside potential is priced into the stock. We were encouraged by the long-term outlook and estimate that if management can achieve its targets, the 2022 financial results could potentially support a $37.00–$42.00 share price. We expect to gain more clarity on the 2022 plan by 2020.”
Hammill thinks WestJet will generate EBITDAR of $709-million on revenue of $4.74-billion in fiscal 2018. He expects those numbers will improve to EBITDAR of $810-million on a topline of $5.24-billion the following year.
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