Air Canada could break out in early 2023, this analyst says

Looking at the chart for Air Canada (Air Canada Stock Quote, Charts, News, Analysts, Financials TSX:AC), investors might be forgiven for having little faith in a recovery to pre-pandemic levels. The stock fell with the rest of the airline industry in early 2020 and has yet to make much headway in the almost three years hence, while geopolitical concerns along with COVID travel restrictions and the price of oil are all top of mind variables that might be keeping investors away from a name like AC.

But the technical picture on the stock actually looks really good, says analyst Javed Mirza of Canaccord Genuity, who recently named Air Canada as one of his top picks for the next 12 months.

“It has cleared the 200-day [moving average] yesterday. It’s one of the stocks that’s positive here today. Looks really constructive,” said Mirza, speaking on BNN Bloomberg on Thursday.

Mirza pointed to an ascending triangle for the stock over the September to December stretch, where there’s a been a resistance level at around $20 but a rising set of lows going from about $16.50 to now $20.00.

“[There’s] the top of the triangle and you’ve matched this with the price action, and what this is telling us is buyers are stepping in and making this a higher low each time. It’s telling you there’s demand and a breakout above this resistance level,” he said.

“So, a really compelling chart here, which we think has some strong upside. Our fundamental analyst, I think he has this as a top pick for 2023, as well,” Mirza said.

Air Canada reported better looking financials in its third quarter 2022, delivered in late October, which featured operating revenues more than doubling year-over-year to $5.322 billion and an EBITDA margin at 19.9 per cent. The company’s net loss remained at $508 million, however, compared to a loss of $640 million in the third quarter a year earlier.

Companies like Air Canada have been dealing with higher fuel prices and labour difficulties as airlines struggled to keep up with the surge in travel demand coming after Omicron decimated the industry in late 2021 and early 2022.

The forecast for 2023 looks brighter, however, with the International Air Transport Association (IATA) issuing a statement last month, saying it expects a return to profitability for the global airline industry this year, with strong pent-up demand and lower oil prices helping boost business.

“In 2023 the airline industry is expected to tip into profitability. Airlines are anticipated to earn a global net profit of $4.7 billion on revenues of $779 billion (0.6 per cent net margin). This expected improvement comes despite growing economic uncertainties as global GDP growth slows to 1.3 per cent (from 2.9 per cent in 2022),” said Willie Walsh, IATA’s Director General in a press release.