Air Canada pessimism is overdone, National Bank says

Ahead of the company’s second quarter results, National Bank Financial analyst Cameron Doerksen says investors are taking too much of a gloom and doom attitude about Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSX:AC).

As reported in The Globe and Mail, Doerksen July 3 cut his price target on AC from $30.00 to $28.00 but maintained his “Outperform” rating on the stock.

“We appreciate that the market is concerned about the sustainability of air travel demand and pricing as well as the ongoing contract talks with Air Canada’s pilot union,” Doerksen wrote. “However, we believe that the current share price reflects an overly dire scenario for Air Canada.”

The analyst ran through the current valuation on AC stock.

“On our updated 2024 forecast, which assumes a 3.0-per-cent decline in passenger unit revenues and non-fuel unit costs towards the high end of Air Canada’s guidance range, Air Canada shares are trading at just 2.9 times EV/EBITDA and 7.0 times P/E,” he noted. “This is below the historical average forward multiples (excluding the pandemic years) of 4.3 times EV/EBITDA and 9.0 times P/E. If we assumed that AC’s shares should trade at its historical average forward EV/EBITDA multiple in a trough earnings scenario, the current share price implies that 2024 EBITDA would come in at $2.5-billion, a 38-per-cent decline from the $4.0-billion Air Canada generated in 2023. We note that Q1/24 EBITDA was higher year-over-year.”