If you are a shareholder of Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSXX:AC) you are probably not happy. But could things be looking up?
As reported by the Globe and Mail January 10, National Bank Financial analyst Cameron Doerksen issued an update that addressed the sentiment ahead of the company’s Q4 results.
The analyst said whether it is fully warranted or not, the stock is historically cheap.
“Air Canada shares are trading at just 3.5 times EV/EBITDA,” he said. “This is below the historical average forward multiple (excluding the pandemic years) of 4.4 times. Indeed, if we assumed that AC’s shares should trade at its historical average multiple, the current share price implies that 2024 EBITDA would come in at $2.8-billion, a 30-per-cent decline from the $4.0 billion we forecast for 2023.”
Doerksen said there is value in AC stock.
“Investors have numerous concerns about Air Canada including the growing risk of a recession in Canada, the outcome of negotiations with its pilots, higher capex in the coming years, and increased competition,” he said. “The bottom line for us is that the current valuation for Air Canada is reflecting what we believe is an overly pessimistic outlook and the stock has significantly underperformed its closest North American peers.”
While there are a myriad of issues for companies in what is an extremely cyclical business, the analyst said demand is not one of them.
“We believe investors’ largest concern for Air Canada is the sustainability of demand and pricing in the context of growing financial constraints on consumers and the risk of a recession,” he wrote. “However, demand for air travel in Canada appears to be holding up well. Based on CATSA passenger screening data at Canada’s largest airports, the 7-day rolling average of passenger traffic in Canada finished the year 3.6 per cent ahead of last year and just 0.2 per cent below 2019 after tracking close to 2019 levels for much of the year. Air Canada also recently reported that over the peak holiday period, it carried 10 per cent more passengers versus a year ago. According to Statistics Canada, which reports monthly operational and financial performance of Canada’s major airlines, the industry load factor (percentage of seats filled) in October (the latest reported month) showed continued strength, coming in at 84.8 per cent, suggesting that industry demand remained strong for at least the first month of Q4. While down from 87.2 per cent in September, the October load factor was higher compared to the 81.5 per cent reported in October 2022.”
Doerksen today maintained his “Outperform” rating but lowered his one-year price target on Air Canada from $32.00 to $31.00.
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