Analysts upgrade Air Canada as it breaks records
With shares soaring more than 50 per cent this year and record second-quarter profits that smashed already elevated expectations, analysts say Air Canada is still “undervalued” and have upgraded the airline’s stock.
Thanks to increased passenger traffic and lower operating costs, Air Canada reported an adjusted net income on Tuesday of $215 million, or 78 cents per share, almost double the already-elevated average analyst consensus calculated by Bloomberg of 38 cents.
The stock soared Tuesday, increasing 9.6 per cent to $21.74, Air Canada’s highest closing price in 11 years. It dipped 3.96 per cent Wednesday to $20.88, but, the airline’s share price has increased 52.7 per cent since the beginning of the year.
The company’s robust profits and positive results prompted several analysts to upgrade Air Canada’s target price.
“Despite the significant improvements at Air Canada, there remains a tendency to discount these results,” wrote CIBC analyst Kevin Chiang in a note to clients Wednesday, boosting Air Canada’s target price from $23 to $27.
Chiang wrote that Air Canada has not been impaired by its significant capacity growth, and that its restructuring has, in fact, driven improved profitability while being capable of dealing with external factors, such as rising jet fuel costs.
“With Air Canada showing it can grow earnings despite higher fuel costs, line of sight to investment grade debt and a number of positive earnings catalysts, we continue to see it as significantly undervalued,” he wrote.
Air Canada launched 16 international and U.S. transborder routes during the second fiscal quarter, said chief executive Calin Rovinescu on a conference call with analysts Tuesday, and has continued to increase the number of international connecting passengers coming through Canada.
But capacity growth is expected to slow in 2018 as the firm shifts its focus from widebody growth to mainline narrow-body fleet replacement.
Despite its strong results, Robert Kokonis, president of Toronto-based aviation consulting firm AirTrav Inc., said some investors may have concerns about the long-term sustainability of its strategy.