TD raises target on Chorus Aviation to $35.00

TD Cowen analyst Tim James raised his target on Chorus Aviation (Chorus Aviation Stock Quote, Chart, News, Analysts, Financials TSX:CHR) to $35.00 from $34.00, citing stable earnings, shareholder returns and growth opportunities outside its core capacity purchase agreements.

As reported by the Globe and Mail, in an Oct. 27 preview, James maintained his “Buy” rating on the Halifax-based aviation company ahead of its third-quarter results, scheduled for Nov. 10. The average analyst target is $33.86.

“We don’t expect Q3 will provide a catalyst for Chorus shares but expect ongoing earnings stability and more information regarding the non-CPA businesses/opportunities will lead to a gradual move towards our target over 12 months,” James said.

The analyst expects Q3 revenue to remain flat year-over-year, with Adjusted EBITDA declining 14% to $44.5-million, below consensus of $46.8-million. James attributed the decline to scheduled reductions in fixed margins and aircraft leasing revenue under Chorus’s CPAs, partially offset by growth in parts sales, contract flying and maintenance, repair and overhaul operations. The latter businesses have benefited from the Kadex acquisition and organic growth.

James expects the upcoming conference call to focus on the SkyCare acquisition, additional acquisition opportunities, the company’s 2026 guidance and its financial targets through 2029.

He also expects management to provide an update on the outlook for its CPAs. “We believe capital returns (buybacks & dividends) should continue to reward investors,” James said.

James said that Chorus has no exposure to jet fuel prices, providing an advantage over airlines facing higher operating costs. “We prefer Chorus Aviation in the current environment of high jet fuel prices and opportunities for Canadian defence spending exposed businesses,” James said.

By comparison, James remains cautious on Transat A.T., citing its narrow profit margins, financial leverage and exposure to fuel costs.

“We view a cautious approach to Transat A.T. as justified by challenges related to its narrow margins, leverage and the impact of high jet fuel prices on costs, air fares and the related risk to travel volume,” the analyst added.

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