Opinions
John Wilson
Air Canada
AC-T
DON'T BUY
Jan 18, 2016
Stock price when the opinion was issued
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Deferred capex, a positive. Flexibility with its fleet. Strong balance sheet. Under 6x PE, way cheaper than US peers. Softness this year due to tariff uncertainty, sees growth returning in next couple of years. If tariffs don't go on, a nice buy. Put it in a non-registered account as more of a trading stock.
Airlines are economically sensitive stocks. Technically, the chart shows a base, which suggests a swing trade. If, and only if, AC arcs up with definite conviction off support of $15 or so, it could head close to $24 (though might not quite make it).
Don't do it until it breaks out. Plus, you'll need a fundamental reason (such as Trump backing off tariffs).
It has rebuilt its balance sheet and the valuation is well below the historical average. It has lagged the U.S. airline stocks even though it has initiated a 12 month share buyback program. It is at a lower price today than the price for share buybacks, recent option offerings and insider buying in February. Travel should come off a bit but not as much as the drop in its stock price. Buy 13 Hold 4 Sell 0
(Analysts’ price target is $24.65)Airline stocks are not long-term holds. Travel is discretionary, especially for pleasure. Most profitable part is business travel, which won't make a full recovery to pre-Covid levels. Air travel to US is suppressed. CAD at this low level doesn't bode well for overseas purchasing power. Massively leveraged balance sheet, plus looming tariffs.
Canada's largest airline just announced resumption of service from the nation's capital to London UK -- signs of global schedule shuffles and adjusting to declining US bookings. We like that debt is being aggressively retired and shares bought back. It trades at 6x earnings, 2x book and supports a robust 108% ROE. We recommend setting a stop at $9, looking to achieve $18 -- upside potential of 28%. Yield 0%
(Analysts’ price target is $23.42)
It is interesting. When oil first declined, the price moved up, thinking there was some temporary benefit. The price of AC-T has now come lower. It has to do with pricing and capacity. There is always a concern with airlines that they won’t manage the business well. The industry has benefited from consolidations. It is looking more interesting here, but he is waiting for it to make a base.