Air Canada stock is a buy, Citi says

Don’t worry about it.

That’s the takeaway from a recent report by Citi analyst Stephen Trent on Air Canada (Air Canada Stock Quote, Chart, News, Analysts, Financials TSX:AC).

Trent says he thinks a recent report from Canada’s Competition Bureau -warning that the market is dominated by AC and WestJet to a unhealthy degree- may not have the intended effect of creating more competition for consumers.

“Canada’s antitrust watchdog appeared to create a stir, earlier this month, when it recommended that the country eliminate foreign ownership restrictions on Canadian airlines that only fly domestically,” Trent wrote. “While we understand the consumer desire for more choice/lower fares, allowing foreign carriers to own 100 per cent of Canadian domestic airlines, seems far removed from any guarantee of meaningful reduction in fares. Assuming that authorities eventually move ahead with this proposal, key questions would include (1) what new domestic routes would such carriers operate, and/or where would they increase existing domestic frequencies, which would result in both lower airfares and increased profitability for the carriers in question, (2) to what degree would authorities unilaterally provide foreign carriers cabotage rights, or the right to operate domestic flights, while not requesting foreign cabotage rights for Canadian airlines, and (3) to what degree would authorities consider easing the ticket price burden through reduced airport fees?”

As reported by the Globe and Mail, Trent June 30th maintained his “Buy” rating and one-year price target of $25.00 on Air Canada stock.

The analyst, however, stopped short of rating Air Canada higher than those U.S. peers who might be interested in buying it.

“Although Air Canada appears to have very similar opportunities, Canadian dollar trends and somewhat lower FCF generation at least somewhat reduce Air Canada’s comparability with its U.S. peers, on a fundamental basis,” Trent added.