Air Canada price target chopped at National Bank

After reaching a highly publicized labour agreement with its pilots, National Bank Financial analyst Cameron Doerksen has cut his price target on Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSX:AC).

The analyst touched on some of the impact the potential work stoppage had and may have in the immediate future.

“There will be some strike threat-related noise in the Q3 and Q4 results for Air Canada,” he wrote. “For one, given the uncertainty for passengers, Air Canada undoubtedly saw some book-away in the weeks ahead of the potential work stoppage as well as some costs related to re-booking. Immediately following the tentative agreement we observed some more aggressive fare discounting from Air Canada that may also impact yields late in Q3 and into Q4 (noting that domestic fares in our survey this week have strengthened). We have therefore lowered our yield assumptions for Q3 and Q4 and have also trimmed our load factor assumption for Q3 and Q4 by a point. We have also increased some of our cost assumptions to reflect the operational impact of flight changes/cancellations.

Doerksen said that while this agreement provides visibility going forward, it will cost Air Canada.

“In addition to the direct operating impacts from the strike threat, Air Canada will see some other accounting impacts. Firstly, based on the negotiated terms of the contract, Air Canada will be required to retroactively make adjustments to its pilot cost accrual assumptions going back to Q4/23. We therefore expect a large catch-up cost accrual that likely will be run through the operating expenses in either Q3 or Q4. In addition, once a new deal is ratified, in Q4, we assume the pilots will receive a one-time retroactive cash payment for the difference between the new contract terms and the old contract under which their pay has been set since Q4/23. Given the uncertainty around what Air Canada’s accrual assumptions have been, we have not adjusted our model for these changes, but we would expect the company to call-out these items when reporting Q3 and Q4 results.”

As reported by the Globe and Mail, Doerksen September 25 maintained his “Outperform” rating while cutting his price target from $24.00 to $22.00. The analyst says despite the bumpy ride here, he does see value in Air Canada’s stock.

“We continue to view Air Canada’s valuation as attractive,” he added. On our updated 2025 forecast, which assumes only a modest recovery in passenger unit revenues and a jet fuel price assumption that is 20 per cent or more above the current spot price, Air Canada shares are trading at just 2.9 times EV/EBITDA,” he said. “This is below the historical average forward multiples (excluding the pandemic years) of 4.3 times EV/EBITDA and is also well below the U.S. legacy airline peer group, which trades at 4.6 times 2025 EV/EBITDA on average.”