Opinions
Greg Newman
Air Canada
AC-T
RISKY
Aug 01, 2024
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.
Trades at a lower multiple than US because for years was priced as a duopoly, but now much more competition. Costs are lower in US. Likes it here, very cheap at 5.6x 2025. Profit warning, but says demand still healthy. Balance sheet improving. Growth rates keep coming down, but he still models 5%.
More for risk capital. Airlines are not long-term investments. Sell a put and oblige yourself to own it at $14-15, get paid a nice premium.