Air Canada stock upgraded at RBC, target raised to $25.00

Following the company’s most recent results, RBC Dominion Securities analyst James McGarragle is feeling more bullish about Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSX:AC).

On May 8, AC reported its Q1, 2025 results. The company posted Adjusted EBITDA of $387-million on revenue of $5.19-billion.

“Our first quarter 2025 results show Air Canada is effectively managing through a turbulent period,” CEO Michael Rousseau said. “Total operating revenues of nearly $5.2 billion were stable year-over-year on similar capacity. Our revenue diversification strategy remains sound; sixth freedom revenues grew, and Air Canada Cargo and Air Canada Vacations delivered solid results in the period. We recorded adjusted EBITDA of $387 million. Winter is always a challenging test, yet in the quarter we made progress in on-time performance, baggage delivery and customer satisfaction. Most importantly, we carried our nearly 10.8 million passengers safely and I thank all employees for their hard work taking care of our customers.”

The analyst said this was a great quarter that hints at better things to come.

“Key for us from Q1 is that management navigated a significant drop in transborder demand effectively, which demonstrates AC’s diverse network and its ability to adapt quickly to an evolving environment, which we believe is going to drive a re-rate higher in the shares,“ McGarragle wrote. ”Moreover, while we continue to discount heavily our out-year FCF estimates, these estimates call for a meaningful FCF inflection, which we now discount ‘less heavily’ following very strong operating performance in Q1 and which screens extremely attractive following recent weakness in the shares.”

As reported by the Globe and Mail, McGarragle May 12 upgraded Air Canada from “Sector Perform” to “Outperform” and raised his price target on the stock from $16.00 to $25.00.

“We came away positive on Q1 results and are taking our estimates higher, despite the company lowering its guide, as we already built in demand headwinds and to reflect strong cost control,“ he added. ”Our 2025 estimate increases to $3.3-billion (from $3.2-bilion) versus guidance for EBITDA of $3.2-3.6-billion. Our 2026 estimate also moves up on fuel. Key for us is that we expect Q1 performance to drive a re-rate in the shares and have therefore increased our target multiple to 4 times (from 3.3 times), a premium versus historical given solid performance in a tough backdrop.”