Opinions
Javed Mirza
Air Canada
AC-T
DON'T BUY
Jan 31, 2025
Stock price when the opinion was issued
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Our PAST TOP PICK with AC has triggered its stop at $20. To remain disciplined, we recommend covering the position at this time. Combined with our previous guidance, this will result in a net investment gain of 21%.
Does not invest long term in airlines. Business very hard - capita requirements very high, with low margins. Few barriers to entry - lots of new competitors. Oil prices are volatile - which creates difficulty in costs. No dividend makes this company hard to invest in. Better options elsewhere.
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.
No. At a level of support around $20, a pretty strong move. Weak technicals, definitely in a downtrend, messy no-man's land. If we were earlier in the cycle, he'd support its trying to find a base here. Late cycle is big for energy; for airlines that aren't unhedged, that's going to be a big headwind as input costs come under pressure.
His team likes EIF, so take a look at that name.