Air Canada top airline stock

MONTREAL Air Canada’s turnaround plan has won over analysts. The airline has yet to get investors back on board.

The stock boasts the highest rating among North American airlines, according to data compiled by Bloomberg, and analysts are projecting a 48-percent rally in the next 12 months. That’s the best return among the 10 biggest carriers in the region.

Investors are showing less enthusiasm. Air Canada’s 1.3-per-cent gain this year through Monday trails Canada’s benchmark stock index, signalling the big run-up may be over after a quintupling in the shares since chief executive officer Calin Rovinescu announced a cost-cutting strategy in June 2013.

“There’s still room for the stock to rise, but a good chunk of the journey has been done,” Marc-André Robitaille, who holds Air Canada stock among the $800 million he oversees at AGF Investments Inc. in Montreal, said in a telephone interview. “The easy money has been made.”

Rovinescu is working toward a goal of cutting operating expenses by as much as 15 per cent through 2018. He’s packing more seats on long-haul aircraft, expanding the low-cost Rouge leisure unit and ordering new fuel-efficient jets such as Boeing Co.’s 787 Dreamliner.

The airline is set to release first-quarter results on May 12. Earnings will be 16 cents a share, based on the average of 14 analysts’ estimates compiled by Bloomberg, which would be the first profit to start the year — the slowest travel period for North American airlines — since Air Canada’s 2006 public offering.

Investors may get their next glimpse of Air Canada’s longer-term outlook at a presentation to investors in Toronto on June 2. Rovinescu unveiled his five-year operating expense and cost goals at the last investor day two years ago.

“The shares have had a tremendous recovery in the last couple of years, but now we’re at a point where people are looking for the next leg of growth, and how we move higher from here,” Chris Murray, an Alta-Corp Capital analyst in Toronto, said.

Investors are willing to pay about 3.5 times Air Canada’s expected earnings per share for the stock, according to data compiled by Bloomberg. That’s less than half the average price-earnings ratio of 8.8 of its peers. It also trails the 8.1 ratio of smaller Calgary-based rival West-Jet Airlines Ltd., which has been ratcheting up competition at home by adding short-haul routes through its Encore unit.

For all of Rovinescu’s efforts, Air Canada still remains the second leastefficient airline in North America. Costs for each seat for a mile, a key measure of airline profitability, were 15.1 cents in the fourth quarter, 13th among 14 North American airlines tracked by Bloomberg