Air Canada’s stock could fly even higher, this fund manager says

With its share price doubling over the past year, Air Canada (Air Canada News, Stock Quote, Chart TSX:AC) has been a gem of a stock to own, but in a space notorious for its vicious swings, is the party winding down for AC?

Portfolio manager James Telfser of Aventine Asset Management argues that not only does the long term picture look good for Air Canada but the stock could have more upside in 2019.

Air Canada’s turnaround over the past decade has been dramatic, to say the least, with the stock wallowing in sub-$3.00 territory for years as the company dealt with creditor protection woes and substantial losses. But the company began making profits again in 2013 and the stock rising accordingly, with AC’s share price only gaining in momentum over the past half-year.

And even in an industry known for its dependence on externalities —the price of fuel, especially— Air Canada’s chance of success over the long haul seems pretty good, says Telfser, who thinks that even with the run-up over the past 12 months, AC is still a bit of a bargain.

Air Canada’s stock still reasonably valued on many metrics…

“It’s been a great year for Air Canada. The stars have aligned and it’s been a long time coming,” said Telfser to BNN Bloomberg on Wednesday. “It’s still pretty reasonably valued on many metrics and it’s got a lot of price momentum. This is what happens when you mash those two things together.”

“In Canada over the last couple of months, a lot of that competitive intensity has certainly died down, as well, with Onex buying WestJet and Air Canada potentially buying Air Transat. There are a lot of changes in the industry that should actually be positive for Air Canada, even the Aeroplan deal and internalizing that is a great deal,” he said.

Earlier this week, Transat AT announced that it sees Air Canada as the “preferred buyer” of the vacation airline company and advised shareholders to vote in favour of Air Canada’s takeover bid, which came to light in May. The deal would effectively merge Canada’s number three airline with Air Canada, the country’s largest.

Telfser says there’s room for multiples to expand in the airline sector as more people worldwide turn to air travel.

“I think [AC] deserves a higher multiple,” he said. “I would buy some of this stock if it’s for the long term because I think that a lot of the risks around Air Canada have now gone away, with the pensions and the balance sheet, and it’s a much better business going forward for the long term.”

“Interestingly enough, companies that have the best price performance over a trailing nine to 12 months generally are stocks that have the best performance in the next six to nine months. It’s momentum,” he said.