Opinions
Bruce Campbell (2)
Air Canada
AC-T
COMMENT
Nov 08, 2017
Stock price when the opinion was issued
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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.
Premium contentHas been poorly managed for many years. Have a BB credit rating. History says that when things go well, they buy back a lot of shares, but don't touch their debt. They need a better balance sheet, stop issuing shares, and totally change of management style. The industry is so competitive that there is no consumer loyalty; consumers buy the cheapest flights online.
Premium contentIf you can wrap your head around buying at the time of a potential labour strike - we reiterate AC is a TOP PICK. With strong demand for international and domestic travel, we don't expect this dispute to be long lasting. It trades at 10x earnings, 3.3x book and supports a robust 99% ROE. Cash reserves are growing, while the company has aggressively retired debt. We continue to recommend a stop at $16, looking to achieve $26 -- upside potential over 30%. Yield 0%
(Analysts’ price target is $25.74)He does not really take an interest in airlines. There may be an opportunity now for Air Canada with all the rhetoric around the strike. It's been around for some time. Settlement should not be a huge number for cost increases. It is looking to expand internationally. You could buy when the strike is settled and the price starts to rise.
Just reported earnings, which is what started the decline in the stock price, although thinks it had more to do with sentiment and what happened with the actual numbers. He is watching earnings numbers and trends and what happens with them. They basically met their numbers, but after the company reported, the consensus and expectations were so high they ended up disappointing. As the numbers keep getting revised up, expectations get higher and higher. Eventually they hit the numbers, but can't make everyone happy, so the stock price started to sell off. He sold his holdings just before the numbers came out, because it started to break down technically. It probably goes through a period of sideways before the next leg higher, providing earnings are higher.