Air Canada's Strong Performance Surprises Analysts - What to Know About AC Stock

2023-10-31 16:01:27

Air Canada was able to benefit more from travelers’ appetite than analysts expected, notes Cameron Doerksen of National Bank Financial. (Photo: 123RF)

What to do with the shares of Air Canada, Alimentation Couche-Tard and Apple? Here are some analyst recommendations likely to move prices soon. Note: the author may have an opinion completely different from that expressed.

Air Canada (AC, $16.72): travelers are responding

In the third quarter of its 2023 fiscal year, Air Canada was able to benefit more from travelers’ appetite than analysts expected, notes Cameron Doerksen of National Bank Financial.

In fact, the air carrier generated revenues of 6,344 million dollars (M$). This represents a jump of 19% compared to the same period last year. Bay Street and National Bank Financial were betting on $6,096 million and $5,990 million respectively.

Its earnings before interest, taxes and depreciation (EBITDA) also far exceeded forecasts, at $1,830 million. Cameron Doerksen was counting on $1,551 million. Air Canada fared even better than in the third quarter of 2019, before the disruptions caused by the pandemic, underlines the analyst.

The company, however, did not raise its expectations for the full year, and still believes its EBITDA will be in the range of $3.75 billion (B) to $4 B. However, it should get closer to the upper branch, reports the analyst. Like the consensus, he rather anticipates that EBITDA will reach $3.7 billion.

In the third quarter, Air Canada’s cash flow even reached $135 million, while Cameron Doerksen forecast $10 million. Thus, its leverage increased from a multiple of 1.7x at the end of the second quarter to 1.4x three months later.

89.8% of its seats were filled during this period, while the analyst expected this rate to reach 88%.

Air ticket sales are still going well, he reports. At the end of the third quarter of 2023, the value of tickets sold upstream was $4.5 billion. This is less than that of the previous quarter ($5.7B), but higher than what was recorded four years earlier ($2.9B).

According to Air Canada, the analyst indicates, this strong interest has still been felt since the start of the fourth quarter. Of course, competition is becoming increasingly fierce on the Sun destinations and domestic flights side, but this is partly erased by its performance on the Pacific market side, it is said.

Cameron Doersken indicates, however, that the adjusted unit cost per passenger per mile traveled (CASM) should be 1.5% to 2.25% higher than in 2022. This is more than the company had anticipated, underlines the analyst, on the one hand because of the effect of inflation on its costs, and on the other, because it has partly reduced the increase in its supply of available seats.

And this index which makes it possible to evaluate the efficiency of air carriers could well continue to grow during the next financial year, predicts the analyst. Its pilots are demanding better working conditions and more generous pay, and a new Canadian law to protect travelers will come into force.

The analyst therefore maintains his target price at $32. The next few months look pretty good for the company, despite macroeconomic uncertainties and increasing competition.