Air Canada analysts slash targets on ‘bad to worse’ guidance

Air Canada analysts reduced their price targets after the airline withdrew its forward guidance Monday in response to the COVID-19 pandemic.

The Montreal-based company said it’s “facing a severe drop in traffic and a corresponding decline in revenue.” Prime Minister Justin Trudeau said Monday the country would close its borders to all foreign travellers except Americans.

Air Canada said it had cash, cash equivalents, short and long investments of $7.1 billion as of March 13, an amount analysts see as sufficient despite the unknowns of the coronavirus impact.

Meanwhile, the global airline industry needs government aid and bailout measures totalling between US$150 billion and US$200 billion if it’s to survive the crisis, according to the International Air Transport Association.

Air Canada shares have lost more than 66 per cent this year and fell as much as 12 per cent in early trading Tuesday in Toronto.

Here’s what analysts are saying:

CANADIAN IMPERIAL BANK OF COMMERCE,

KEVIN CHIANG

“The situation facing the global airline industry is going from bad to worse as countries are now closing their borders which is creating an unprecedented decline in demand.”

“We see 2020 as a lost year and assume traffic begins to normalize” in the second half of 2021.

CIBC maintained its outperform rating and cut its price target to $37 from $44. The bank believes Air Canada has sufficient liquidity to weather the storm.

RBC, WALTER SPRACKLIN

“We consider management’s update to have provided important clarity on nearterm operating activities and balance sheet health and liquidity.”

“The market reaction, however, suggests more is required, and we believe that would come in the form of a government support initiative, which has yet to be clarified.”

Outperform rating maintained, while price target cut to $31 from $46.

CORMARK SECURITIES, DAVID OCAMPO

Air Canada’s “market update was worse than our initial expectations last week,” though Cormark is “encouraged by the amount of liquidity AC has in its war chest to weather the near-term pressures.”

Air Canada is “attractive at these levels for investors who can stomach the near-term volatility.”

Maintains buy rating, price target cut to $32 from $42.