Transat A.T. has price target chopped at Desjardins

Following the company’s third quarter results, Desjardins has cut its price target on Transat A.T (Transat A.T. Stock Quote, Chart, News, Analysts, Financials TSX:TRZ).

On September 12, TRZ reported its q3, 2024 results. The company posted Adjusted EBITDA of $41.3-million on revenue of $736.2-million, a topline that was down 1.4%.

“Transat’s third-quarter results reflect evolving market conditions and industry-wide pressure as recently indicated by other carriers. Demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty. Capacity increases throughout the industry also added to competitive pressure and negatively impacted yields,” CEO Annick Guérard said.

As reported by the Globe and Mail, the analyst thought the results were weak.

“Overall, we view the results as negative given the weaker-than-expected profitability and cash flow, as well as the soft yield (down 9.7 per cent year-over-year) and load factor dynamics (86 per cent vs 89 per cent last year),” he said. “While we are pleased that management is taking direct action with the launch of its new Elevation Program, in view of the urgency of the comments on the call and our forecast lack of upcoming FCF, we now believe further shareholder dilution through some form of near-term capital raise is increasingly likely/needed.”

In a research update to clients September 13, the analyst maintained his “Hold” rating on TRZ while lowering his price target from $3.00 to $2.00.

Poirier says some measure the company took to improve its situation probably won’t show up for a while.

“A comprehensive review of operations/practices was conducted over the summer in partnership with a consulting firm,” he added. “Examples of the resulting initiatives include improving capabilities through technology and AI, reducing spend through pricing and contract optimization, and increasing utilization. Given the nature of the announced actions, we believe that most of the cost savings will be backend-weighted in terms of the timeline (FY26).”
“Management stated on the call that it has been in discussions over the last few weeks with governments on a more frequent basis (to try and help with the over-levered balance sheet). We now forecast that TRZ will end the year with leverage of 13.6 times based on our revised estimates, and that the company gets some relief from financial compensation (US$25-million from Pratt & Whitney), monetization of engine assets, a stronger Canadian dollar and a lower jet fuel price.”