On Tuesday, Air Canada reported its Q2, 2019 results. The company earned $343-million on revenue of $4.76-billion, a topline that was up 9.9 per cent over the same period last year.
“I am delighted to report an excellent second quarter, including record operating revenues of $4,757-million and record liquidity of nearly $7-billion,” CEO Calin Rovinescu said. “Although our results exceeded expectations, the Boeing 737 MAX grounding negatively impacted EBITDA growth year over year. Our management team and all employees involved with this complex issue did an incredible job implementing creative solutions for our fleet, schedule, network and operations to get passengers to their destinations during the quarter.”
Hammill says this was a strong quarter from AC, noting that it beat both his and the street’s expectations. He says the strong demand the company is enjoying is increasing the frustration with the Boeing 737 Max recall that affects about 20 per cent of its fleet, but adds that Air Canada is overcoming it anyway.
“Despite the current headwinds resulting from the continued grounding of the Boeing 737 Max aircraft, we remain upbeat in our outlook for AC and believe that a multiple expansion is more than overdue. The Max grounding exemplifies how Air Canada’s business has been built to withstand various unforeseen shocks and still deliver strong profits. The current spread between AC and U.S. legacy carriers based on 2019 consensus EBITDA estimates is ~1 multiple point, with AC trading at ~4.5x and U.S. peers at ~5.5x. We estimate each multiple point is worth ~$14.00 per AC share. We
are rolling forward our target price to 2020 (was 2019) while maintaining our 4.5x target EV/EBITDA multiple.”
In a research update to clients today, Hammill maintained his “Buy” rating on Air Canada but raised his one-year price target on the stock from $44.00 to $54.00, implying a return of 14 per cent at the time of publication.
Hamill thinks AC will post EBITDA of $3.62-billion on revenue of $19.3-billion in fiscal 2019. He expects those numbers will improve to EBITDA of $4.05-billion on a topline of $20.4-billion the following year.
File Under: Air Canada Stock News
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