Opinions
Teal Linde
Air Canada
AC-T
COMMENT
Mar 09, 2017
Stock price when the opinion was issued
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Premium contentCanada'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 trading near the levels seen at the early stages of the pandemic. Trade war fears have dragged down the airlines but this is overdone. Air Canada is at an 80% booking level which is normal. Its flights to the U.S. are down but international business is strong. It makes more money on international flights than domestic. The price is still OK. Buy 14 Hold 2 Sell 1
(Analysts’ price target is $23.09)Premium contentPremium contentWe reiterate AC as a TOP PICK. The company is adjusting to uncertainty over North America air traffic, which is a result of their well diversified route portfolio. Cash reserves continue to grow as debt is retired and shares bought back. It trades at 10x earnings, 3x book and supports a ROE of 125%. We recommend trailing up the stop (from$13.00) to $14.50, looking to achieve $24.00 -- upside potential of 20%. Yield 0%
(Analysts’ price target is $23.74)Started to put in a bit of a bottom a couple of months ago, as did many other airlines. This name's had a big move higher. There are 2 ways to consolidate: in price (sharp pullback) or in time (move sideways). Thinks we'll see consolidation at least for a bit, perhaps with a slight downward bias. (In tech analysis it's called a "flag".) Once done, it should resume the uptrend and move higher.
Once we get into August, put on the brakes or at least assess the risk.
It is a trading opportunity and not a long term hold. There is still upside and there has been insider buying. It has announced an issuer bid. 18% of shares have been bought and cancelled in a year so revenue per share is going up. It is trading at a discount to its American peers and to its historical valuation.
This has moved up a lot since last fall. There were 2 things to consider. Last year was their largest year for CapX with $3 billion. That is now going to come down meaning their cash flow is going to increase and they are going to start paying down debt, allowing the valuation level to move on to a higher level to their peers. It is still trading at 5X this year’s earnings and 4X next year’s, much lower than the US peer group. It had a big jump since last fall, so maybe it’s due for a breather.