Stockchase Opinions

Benj Gallander Transat AT Inc. TRZ-T BUY May 22, 2018

This is his top play in the airline sector. He prefers this to Air Canada because AC has moved up so much. Air Transat has also moved up a lot but still has upside.

$8.400

Stock price when the opinion was issued

Transportation
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DON'T BUY

He likes it as a consumer, but as an investment it is probably worse than liquor stores (LIQ-T): low margins and competitive. There are players that are wobbling. It is a tough business.

PAST TOP PICK

(A Top Pick April 26/16. Up 27%.) *SHORT* (Pairs trade with a Long on Air Canada (AC-T). This Pairs trade is driven more by the Short side than the Long side. This company has always had razor thin margins, and if the wind blows in the wrong direction they tend to have a loss. He would continue with this position.

WEAK BUY

He has looked at it a number of times. You jump on it and the stock rolls over. The industry can be quite cyclical. Management is working through issues and building capacity as well as working on properties down south. He wants to see them work through the execution and see what it looks like then. It has pulled back on energy fears because of jet fuel and so he thinks this is a good time to load up on it, but he prefers AC-T.

DON'T BUY

He loves it because their prices are really good. As an investment he has shied away from it. It is a tough business. They admit that they have to diversify now. He thinks the recent acquisition is extremely risky.

DON'T BUY
The airline industry has taken a significant volume reduction. There will be a modest recovery that will gain strength over an 18 month time-frame. He finds a huge disconnect between valuations and what they should be. Most airlines are operating at virtually zero levels.
DON'T BUY

Rumours that the Air Canada deal will fall apart and someone will take Transat private The whole airline sector is facing difficulty now. Air Canada's takeover offer likely won't offer given the pandemic. Transat's revenues are down nearly 98% last quarter and begging Ottawa for help. A private take-out is possible; who knows? Airlines are uninvestible now.

SELL

It's currently in the midst of a potential merger with Air Canada. COVID has also decreased air travel significantly. Current cash positions will help the company weather the crisis. However, they will probably burn through their cash by the end of this year. There is also competition from private companies who can undersell them by up to 40%.

SELL
Allan Tong’s Discover Picks Air Transat is less desirable. Not exactly beloved by Canadian consumers, Transat isn’t receiving much affection from investors either. Last week, CIBC lowered its target on the hapless airline from $4.00 to $3.00 to underperform. Currently, there are three sells and one hold, with a $3.48 price target that is about 35% below current share prices. Surprisingly, Transat shares climbed 15% in May. Maybe that’s not so surprising, because those shares tanked over the winter. Read 3 Hot Canadian Summer Stocks for our full analysis.
RISKY

Air traffic is a growing business, and this company services the smaller end of the market. A dangerous business, as it requires a lot of capital and can be hit by black-swan events like the pandemic. Low-quality play. Speculative.

See his Top Picks.