Noah Zivitz

Managing Editor, BNN Bloomberg

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Notwithstanding chaos in airports, economic uncertainty, and the threat of ever-higher fuel prices, the outlook for Air Canada shares is still attractive, an industry analyst told clients Wednesday.
 
In a report, Savanthi Syth at Raymond James lowered her earnings forecasts for Canada's largest airline and also cut her price target to $23.00 per share from $30.00. However, she maintained her outperform recommendation (the equivalent of a buy).
 
"While we acknowledge that it will be difficult for shares to outperform until street estimates reset lower, we believe the risk-reward is compelling at current levels, particularly given Air Canada’s strong liquidity position," she wrote.
 
Air Canada's shares had been essentially flat year-to-date up until a few weeks ago. However, as of the close of trading Tuesday, they had sank 26 per cent since the end of May.
 
The airline and the broader Canadian aviation sector have been making headlines for all the wrong reasons so far this summer, as pent-up demand and insufficient staffing has resulted in rampant delays and cancellations at Canadian airports. And that's part of the reason Syth took down her estimates.
 
"While Air Canada appears to have staffed well ahead of the summer travel season, staffing issues at airports and related agencies exacerbated challenging weather conditions," she wrote.
 
However, it's not just Canadian airlines that have been struggling. Indeed, major U.S. carrier Delta Air Lines Inc. has seen its stock price sink almost 29 per cent since the end of May.
 
At a macro level, Syth said the likelihood of persistently elevated fuel prices is weighing on all airlines amid Russia's invasion of Ukraine. She also said in her report she assumes the current global economic slowdown will eventually dent demand, "despite no sings of softening demand/fares currently beyond normal seasonality."
 
Among the 17 analysts tracked by Bloomberg, 12 have buy recommendations on Air Canada, and the other five say it's a hold. The consensus 12-month price target is $28.75 per share, implying 75 per cent potential upside from Tuesday's close.