Opinions
Norman Levine
Air Canada
AC-T
DON'T BUY
Sep 25, 2018
Stock price when the opinion was issued
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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.
He got rid of it due to the choppy chart. Airlines are labour-intensive, subject to strikes, have high fuel costs, sensitive to the economy.
Chart's showing it's neither here nor there. If it broke a bit below where it is now, as part of a longer-term downtrend, could easily see $10 range and you'd be best to sell and redeploy $$ elsewhere. Reasonable dividend.
More capital has been destroyed by the airline business than by any other business in history. There are times to own them--as trades, not as long-term investments. Demand and fuel costs are the primary impacts on airline stock prices. Demand is good now, but fuel costs are rising, which will become a big negative. In addition, as demand rises, airlines add routes, cut fares, and wipe out their profits. This is a cyclical business. It is best to own an airline that is disciplined, when demand is good and when oil prices are coming down.